The newly announced Vehicle Scrappage Policy is a gamechanger in India’s fight against air pollution and transition towards cleaner mobility. The policy, which was much awaited, is targeted at promoting a circular economy—to maximize the efficiency of resources, ensure zero waste and sustainable patterns of production and consumption—and combating vehicular pollution.
Old and unfit vehicles are a major source of vehicular pollution in India, with emissions nearly 6-7 times more than new vehicles. The new Vehicle Scrappage Policy envisages a mechanism to retire such End-of-Life Vehicles (ELVs) that are no longer fit to be driven on roads and are polluting, unsafe and have lower fuel efficiency. According to estimates, nearly 13-17 crore vehicles will reach the end-of-life stage in the next 10 years. The new policy, therefore, comes at a crucial juncture.
India has witnessed a phenomenal boom in the automobile sector, recording an annual growth rate of 9.4 per cent in the last two decades. To date, there are 33 crore vehicles registered in India. So, a vehicle registered in the 1950s may still be ‘registered’ with the road transport authorities. Two-wheelers constitute the largest chunk—accounting for about 75 per cent of all vehicles—followed by cars, jeeps, and taxis occupying the second-largest segment at about 13 per cent. As per the Vahan database of the Ministry of Road Transport and Highways, there are more than one crore vehicles that do not have a valid fitness or registration certificate. The Vehicle Scrappage Policy is a first-of-its-kind institutional mechanism to de-register any vehicle.
Moreover, scrapping an ELV can generate not only ferrous and non-ferrous metals but also other materials like plastic, glass, rubber, textile, etc., which can be recycled or shredded for use as fuel for energy recovery. Recycling ELVs will create a shift towards the use of renewable resources as well as reducing waste volumes. Prime Minister Narendra Modi has emphatically announced that a circular economy is going to be a key step towards addressing the ecological strain on our planet.
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During the global economic recession in 2008-09, Cash for Clunkers and the Car Allowance Rebate System (CARS) were similar initiatives by the American federal government. Financial incentives were provided to owners of old and fuel-inefficient vehicles, to trade their automobiles for newer more fuel-efficient options. The European Union generates approximately 9 million tonnes of ELVs every year. Producers have been imparted the responsibility for treatment of ELVs. Similarly, treatment of ELVs was identified as a major challenge in Japan with approximately 5 million automobiles taken off the roads annually. Many developed countries have adopted circular economy principles to ensure optimal utilisation of ELVs as a resource for future automobile manufacturing. India’s policy is very much in tandem with these global best practices.
Currently, there is an unorganised informal market for vehicle scrapping in India, which is highly unstructured, labour-intensive and non-environment friendly. Mayapuri in Delhi, Kurla in Mumbai, Pudhupettai in Chennai, Mallick Bazaar in Kolkata, Jawahar Auto Nagar in Vijayawada, Auto Nagar in Guntur are all examples of such vehicle scrapping ecosystems. Moreover, since the informal sector uses crude methods for dismantling and recycling, the full value of high-strength steel alloys and recovery of precious metals are not realised. The informal and unorganised vehicle recycling sector mainly consists of traders, dismantlers, scrap dealers and recyclers. The new vehicle scrapping policy of the Union government will transform the unorganised market and bring many informal sector workers into the ambit of the formal sector.
A study undertaken by the Ministry of Road Transport and Highways (MoRTH) to evaluate and understand the existing operations of these scrap yards established them as common open areas shared by multiple mechanics and repair shops. Vehicles are primarily sourced from brokers, used car dealers, private bus/taxi operator associations or mechanic shops and, at times, even stolen vehicles are dismantled here. Brokers typically source from auctions by vehicle finance companies, insurance companies and police departments. Vehicle dismantling is a purely manual process employing about 3-4 people with no special machinery used for dismantling parts.
The new policy aspires to augment investments towards setting up of automated fitness testing centres, which will be state-of-the-art facilities checking the ‘road-worthiness’ of vehicles. These centres will be set up on a public-private partnership model by state governments, private sector firms, automobile manufacturers and others. This will undoubtedly generate huge employment opportunities. Alongside, large investments in setting up scrapping centres across the country are also in the pipeline. This too will lead to the creation of employment opportunities across the value chain.
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The scrappage policy intends to incentivise owners of old vehicles (which are over 15 years old) through seamless de-registration of scrapped vehicles and provide a certificate of deposit. This certificate can be redeemed for buying new vehicles and the customer will get a full waiver of registration fees. Along with this, MoRTH has issued a draft notification for up to 25 per cent rebate on road tax for personal vehicles and up to 15 per cent rebate for commercial vehicles.
Industry bodies like the Society of Indian Automobile Manufacturers (SIAM) have also come forward to support this initiative. MoRTH has issued an advisory to SIAM for 5 per cent discount on new vehicles purchased against scrapped vehicles. The policy also seeks to increase re-registration fee for private vehicles older than 15 years, along with increasing the fitness certification fee for commercial vehicles older than 15 years. States have been advised to levy a ‘Green Tax’ on older polluting vehicles. Andhra Pradesh, Telangana, Karnataka, Maharashtra and Uttar Pradesh have already initiated steps in this direction.
At a macroeconomic level, this policy will boost the demand for newer vehicles. In the post-COVID scenario, automobile sales have experienced a 14 per cent plunge. This policy, by way of retiring older vehicles, will boost manufacturing, generate demand for newer automobiles for commuters and snowball the annual turnover of the industry by 30 per cent in the coming years. The new policy is a groundbreaking step that will usher in a new era in Indian mobility, one that is climate-conscious, pedestrian- and commuter-friendly, and technologically enabled.
The author is CEO, NITI Aayog. The views expressed in this article are those of the author and do not represent the stand of this publication.
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