Scrappage policy: Demand booster for auto sector, recipe for road safety

Draft policy being put into place to curb pollution, input costs for the auto industry as a whole.

By:March 19, 2021 7:59 AM
Vehicle Scrappage PolicyThe scrappage policy can act as an important catalyst for the Atmanirbhar Bharat and as a platform for job creation.

India’s automobile industry and the consumption demand in the economy will likely get a leg-up from a ‘voluntary’ vehicle scrappage policy announced by road transport and highways minister Nitin Gadkari in the Lok Sabha on Thursday, even as it will have a salutary effect on environment due to mitigated vehicular pollution.

The policy lays emphasis on fitness, rather than age of a vehicle; it will be rolled out in phases starting from October this year, but will take full effect only in late 2024.

The policy, now in the draft stage, is meant for the entire country, but it is unclear if a 2015 Supreme Court order validating a National Green Tribunal directive that prohibited diesel cars older than 10 years and petrol vehicles older than 15 years from plying on the National Capital Region would prevail on it.

Other likely beneficial results of the policy include its potential to give a boost to the government’s goods and services tax (GST) revenue, develop an organised vehicle-scrapping industry, and rein in the input costs for a range of industries, including automobile, steel, electronics and white goods.

Under the proposed policy, all personal vehicles will have to undergo mandatory fitness test after 20 years to ply on the roads while commercial vehicles will have to pass the test after completion of 15 years. On failure to obtain the fitness certificate, the vehicle would be impounded by the transport authorities, declaring that it as ‘end of life vehicle’.

Gadkari said: “The Voluntary Vehicle Fleet Modernisation Programme will enable Indian auto industry to take its turnover to ₹10 lakh crore (in a few years) from ₹4.5 lakh crore at present… availability of scrapped material will reduce the cost of auto components by 30-40%.”

A carrot-and-stick approach is proposed, whereby scrapping of ‘old vehicles’ (those that passed the thresholds mentioned above) will be promoted with assorted incentives: Scrap value at 4-6% of ex-showroom price of new vehicle, 5% discount on purchase of new vehicles, road tax rebate by states, at the rate of 25% for personal and 15% for commercial vehicles and waiver of registration fee for new vehicle purchased on scrapped vehicles.

Also, there are disincentives and penalties for non-compliance: Hike in registration and fitness certificate renewal fees, stiff penalties for delay in renewals, green tax by states, and, of course, mandatory automated fitness test and de-registration for the old vehicles failing to pass the mandatory fitness test.

If fitness and its registration certificates are renewed, a private vehicle can ply on the roads even after 20 years of first registration and a commercial vehicle beyond 15 years. However, increased fitness fees and re-registration charges would act as a deterrent for an owner to retain old vehicle.

Vehicles owned by the government or public sector units, panchayats and state transport undertakings will straight away go for scrapping after 15 years in service.

Gadkari said he had requested finance minister Nirmala Sitharaman and the states to give concession in goods and services tax (GST) on purchase of new vehicles against the scrapping certificate. Also, automobile companies have been asked to give 5% rebate on purchase of new vehicles against scrappage certificate.

A new law often supersedes an SC order unless it is unconstitutional, but it is not immediately clear how solid a legal backing the instant policy will have: the possible legal instrument is the Motor Vehicles Act.

Also, many of the incentives offered under the policy will need the state governments’ concurrence, given the revenue outgo involved. Road transport is in the concurrent list.

Currently, there are 51 lakh vehicles in India which are older than 20 years, 34 lakh vehicles more than 15 years old and 17 lakh older than 15 years, without renewed fitness certificate. Such vehicles are seen to pollute air 10-12 times more compared to vehicles that are fit, besides being unsafe for use.

The minister said vintage cars will be outside the purview of the new policy.

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