Sensing a significant business opportunity in the government’s vehicle scrap policy to be implemented from April next year, state-run MSTC will soon forge a joint venture agreement with a unit of Mahindra & Mahindra to set up the country’s first auto shredding plant at an estimated investment of Rs 120 crore.

MSTC Board has already approved the proposal to join hands with Mahindra Intertrade (MIL), MSTC chairman and MD B B Singh told FE, adding that the MIL Board is yet to accord its approval. The agreement for the JV would be signed immediately after their approval. The two had signed an MoU in this regard in April. “I expect the JV to be signed within the next three months,” Singh said.

The draft Voluntary Vehicle Fleet Modernisation Plan (V-VMP), vehicle scrap policy,  will be applicable to the vehicles bought on or before March 31, 2005, the road ministry had earlier said, inviting comments from stakeholders. It has also submitted the draft policy to its finance counterpart seeking approval.

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Roughly, around 28 million vehicles would go off the roads if the policy is implemented.

India does not have any modern auto shredding plant as of now. MSTC-MIL is trying to cash in on that as a lot of opportunities would open up for them. This would also help a lot of forex savings as a result of import substitution of scrap. The JV company would work on auto and white goods, Singh said.

Secondary steelmakers of the country import around 5 MT of scrap in a year for recycling them into finished steel.

The locally available scrap would also make their cost of production cheaper. Again, hi-tech shredding using better technology and machinery would also help the country rein in pollution.

The two firms, however, are yet to finalise the shareholding pattern and the plant location. But, they have initially identified four-five locations for putting up the auto shredding plant. National capital region (NCR), Gujarat, Maharashtra, West Bengal and Chennai are among the probable locations for the R120-crore plant.

Singh said MIL had evinced interest in a tender floated earlier to be a partner in its maiden venture into the shredding space. MSTC had to rope in a partner as it did  not have the necessary expertise to run such a plant. The association with MIL would be a win-win for both the firms, he said.

Under the vehicle scrap policy, people surrendering their old vehicles and buying new ones are likely to receive three benefits amounting to 8-12% of the total cost of the new vehicle. The policy is expected to boost sales of automobile manufacturers, leading to higher production capacity utilisation.