Vehicle scrapping business now open to all

But auto firms can’t directly own testing centres.

By:Updated: Sep 26, 2021 11:18 PM

Players in the automobile value chain, including manufacturers of vehicles and auto parts, dealers and service stations, can’t directly own and operate automated testing stations (ATSs) under the new scrapping policy, according to the final rules in this regard that came into effect on Saturday. They will, however, be eligible to set up ATS shops by forming subsidiaries or joint ventures or special purpose vehicles.

The restriction is aimed at eliminating any kind of conflict of interest, official sources said. Setting up of scrapping centres, however, will be open to all, including the assorted entities in the automobile sector.

As per an estimate by the government, 450-500 automated testing units and 60-70 scrapping centres will come up in the country with a fresh investment of more than Rs 10,000 crore. A clutch of companies including Tata Motors is learnt to have already signed initial pacts with the Gujarat and Assam governments to set up businesses in the area. Testing and scrapping infrastructure are crucial for meaningful implementation of the scrapping policy, which is expected to give a boost to the automobile industry, besides contributing significantly to cutting vehicular air pollution and creating thousands of new jobs.

Explaining the rationale behind such distinction (regulation of ownership of ATSs and free entry into scrapping business), Amit Varadan, joint secretary at ministry of road transport and highways, told FE: “An ATS is like a doctor who will prescribe whether a vehicle is fit for the road or not after testing. There could be an element of conflict of interest if a vehicle manufacturer or such other persons are involved in testing. But, when an ATS renders one vehicle unfit, the role of the scrapping centre is limited to scrapping the vehicle and hence, no regulation of ownership is called for there.”

ATSs will use mechanical equipment to automate various tests required to check fitness to a vehicle. The fitness test for a commercial vehicle is required to be done every two years for the vehicle age of up to eight years, and every year for the vehicles older than eight years. Fitness test for a personal vehicle is to be done at the time of renewal of registration (after 15 years) and repeated after every five years.

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.

On failure to obtain the fitness certificate, the vehicle would be impounded by the transport authorities, declaring that it as ‘end of life vehicle’. For commercial vehicles above the prescribed age threshold, mandatory fitness test and re-registration will be required from April 2023 onwards and the regime will kick in for personal vehicles in phases from June 2024 onwards.

Unveiling the policy last month, Prime Minister Narendra had said the policy could give a leg-up to India’s high-growth automotive industry and the downstream units that rely on it, boost consumption demand and help cut vehicular air pollution.


A carrot-and-stick approach is to be followed under the policy, 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 will be 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.

The government had earlier said an estimated 51 lakh vehicles are there in the country 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.

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