vehicle scrappage policy

In order to arrest the rising air pollution levels in major cities of the country, the ministry of road transport and highways is slated to scrap vehicles that are more than 20 years old under the vehicle scrappage policy or voluntary vehicle fleet modernization program which was first mooted in 2016. The policy awaits cabinet nod. In the first phase, it proposes to take old commercial vehicles off the road while also mooting creation of an ecosystem to promote scrapping and recycling.

Since 65% of total air pollution is caused by older commercial vehicles plying on road, the policy is bound to make a considerable impact on environmental sustainability. Apart from this, it will also give thrust to automobile sector by creating new demand.

The policy can be seen as an extension of NGT ruling for Delhi-NCR whereby all decade old diesel vehicles were ordered to stop plying on road.

One may also note that similar policies had been implemented in countries like US, UK, China, Indonesia etc. either to drive auto industry or to reduce pollution.

Features of Vehicle Scrappage Policy

  1. The policy pitches for mandatory disposal of more than 20-year-old commercial vehicles from 2020 (when BS-IV emission norms come into force). It institutes incentives to encourage voluntary replacement.
  2. It seeks replacement of old vehicles in a phased manner starting with commercial vehicles and later expanding to private four-wheeled vehicles.
  3. It proposes lesser tax (GST) of 5% or a complete waiver on replaced commercial vehicles instead of 28% levied currently on commercial vehicles and on those carrying 10 or more persons. This will incentivize scrapping of old vehicles.
  4. It also moots concessional rates on new vehicles for buyers who replace old vehicles which can be availed by showing documents evidencing sale of an old vehicle. The benefit offered is expected to be around 15% of vehicle price.
  5. Vehicle scrapping centres will be opened by the department of heavy industries to prepare the ecosystem for implementation of the policy. Many such clusters would be developed in proximity to ports under the Sagarmala initiative. These clusters would process scrap vehicles from across the globe, separate and recycle their components and in turn, bring down prices of automobile parts.

The rationale behind the policy: The multifaceted benefits it offers

  1. For Government coffers: The proposal is slated to boost tax revenues collected from automobile sector to the tune of Rs 10,000 Crores.
  2. Containing oil Imports: Scrapping old vehicles is expected to reduce oil consumption by 3.2 billion litres per year. This will help save nearly Rs 7,000 crore in oil import.
  3. Aligns with Make in India : It would give thrust to the automobile industry which is projected to grow at an annual rate of 22% thereby making India a hub for automobile manufacturing. The automobile industry which at present is a Rs 4.5 lakh crore industry could swell to a worth of nearly Rs 20 Lakh Crore.
  4. Automobile Industry envisioned to be the main driving force of economy: The competitiveness of automobile industry would witness an improvement as factor costs are expected to reduce with the availability of scrap metal for forging auto parts.
  5. Curbing air pollution: Since old vehicles are not compliant with Bharat Stage emission standards and are operating on BS-I and BS-II standards. Withdrawing them from the road would bring air pollution in cities down by a substantial amount as one 15-year-old vehicle plying on Indian road has emissions equivalent to 25 new generation vehicles.
  6. For the steel industry: By generating fresh demand, the policy will help in the revival of India s steel industry that has been reeling under stress. Generation of steel scrap, on the other hand, would lower steel imports.

Download Vehicle Scrappage Policy PDF

Is the policy only big talk?

  1. While the policy promises incentives in the form of lower tax rates and concessions, the quantum of benefits available to buyers will depend to a great extent on state governments.
  2. In order to make India a hub for recycling, infrastructure at ports will need an overhaul. The most pressing requirement, in this case, is the need for deeper drafts to support heavy vessels.
  3. The policy proposed in 2016 sought to replace nearly 28 million commercial vehicles older than 15 years. The current policy mandates disposal of 20-year-old vehicles which approximately number around 50,000. This, therefore, dilutes the objectives sought to be achieved under the program.
  4. The policy also becomes redundant as medium and heavy commercial vehicles have a life of 20 years typically. Moreover, more than 70,000 vehicles are scrapped annually (CRISIL).
  5. The benefit offered for replacing vehicles is too meagre when seen coupled with the expected 10-15% of price rise diesel vehicles are expected to witness in the years to come. The earlier draft, on the contrary, had promised 50% waiver on excise duty, the scrap value of the truck and additional discounts from the original equipment manufacturers.
  6. The policy may not make any dent in rural areas where old vehicles find more use as operators there have limited financial resources to upgrade vehicles.

Does it needs to be tweaked?

  1. For the policy to make the intended impact, it should target 15-year-old vehicles instead of 20-year-old ones.
  2. Incentives offered to the tune of 15% of vehicle price may be strengthened further by tax waivers and additional discounts.
  3. Provisions can be instituted to make the policy palatable to rural operators through easier payment options, credit facilities, subsidies etc.

Conclusion

The vehicle scrappage policy aligns with various other initiatives of the government aimed at reducing vehicular pollution such as the promotion of alternative fuels (biodiesel, bioethanol etc.) scheme for promotion of hybrid electric vehicles (FAME) and advancing the adoption of BSVI stage emission standards for vehicles. The policy in order to balance public interest seeks to replace 20-year-old vehicles by 2020. This dilutes the envisioned objective and must be rectified.

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