Scrappage policy eyes Rs 10,000 crore investments

Steel Insights Bureau

The Union Budget has announced a Voluntary scrappage policy proposing that private vehicles older than 20 years and commercial vehicles older than 15 years would be eligible to be scrapped.

The implementation of the policy would lead to recycling of waste metal, improved safety, reduction in pollution and also reduction in oil imports due to greater fuel efficiency of current vehicles, analysts said.

“We are separately announcing a voluntary vehicle scrapping policy, to phase out old and unfit vehicles. This will help in encouraging fuel efficient, environment friendly vehicles, thereby reducing vehicular pollution and oil import bill. Vehicles would undergo fitness tests in automated fitness centres after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles. Details of the scheme will be separately shared by the Ministry,” Finance Minister Nirmala Sitharaman said.

Nitin Gadkari, Union Minister for MSME and Road Transport & Highways said the details of the Voluntary Scrappage Policy will be announced within 15 days from the date of presentation of the Budget proposals and added that the scrappage policy will lead to new investment of around `10,000 crores, creating close to 50,000 jobs.

The policy is expected to cover an estimated 51 lakh light motor vehicles (LMV) that are above 20 years of age, while an additional 34 lakh LMVs are beyond 15 years. The policy would also cover 17 lakh medium and heavy motor vehicles without valid fitness certificates and 10-12 times more polluting than the latest models.

“The vehicle scrappage scheme has a good intent and the auto industry would be keen to work with the Government on suggestions for maximizing benefits to environment and society,” Kenichi Ayukawa, President, Society of Indian Automobile Manufacturers (SIAM) said.

Pawan Goenka, Managing Director, Mahindra & Mahindra, welcomed the policy but said that to incentivise scrapping is the right thing but forcing vehicle owners to scrap is not desirable.

Also, making scrapping mandatory might lead to a deluge of scrapping requirements which current capacities can’t handle right now.

Interestingly, Mahindra & Mahindra group is the co-promoter of Mahindra MSTC Recycling Pvt. Ltd, India’s first organized vehicle recycling entity.

A voluntary scrappage policy may be converted into a mandatory policy over the next five years, Goenka added.

“We believe that the Commercial Vehicle space would benefit the most from the proposed scrappage initiative and companies across the value chain (OEMs, forging players, tyre players and tyre chemical suppliers) stand to gain as a result,” said ICICI Securities.

According to the Federation of Automobile Dealers Associations (FADA), only 10 percent of Commercial Vehicles and 5 percent of Passenger Vehicles made before 1990 still run on the roads.

Most of the vehicles which are still on the road, unused or barely used, won’t be brought for scrappage unless there is a clear incentive to do so, FADA said adding that it would will also be important to have an organised scrapping industry in India to reap the benefits of such a policy.

Green tax on old vehicles

To incentivise scrapping, the Road Transport and Highways ministry has come out with a proposal to levy a ‘Green Tax’ on old polluting vehicles.

The proposal will be consulted with the states for consultation before it is formally notified.

As per the proposal, vehicles older than 8 years could be charged Green Tax at the time of renewal of fitness certificate, at the rate of 10 to 25 percent of road tax.

Personal vehicles will be charged Green Tax at the time of renewal of Registration Certification after 15 years.

Public transport vehicles, such as city buses, to be charged at a lower rate while a higher rate of 50 percent of Road Tax would be imposed on vehicles registered in highly polluted cities.

There would be differential tax rates depending on kind of fuel (petrol or diesel) and type of vehicle.

Vehicles like hybrids, electric vehicles or those using alternate fuels like CNG, ethanol, LPG etc to be exempted.

Vehicles used in farming, such as tractor, harvestor or tiller would be exempted.

Revenue collected from the Green Tax to be kept in a separate account and used for tackling pollution, and for States to set up state-of-art facilities for emission monitoring.

The Green Tax would dissuade people from using vehicles which damage the environment and motivate people to switch to newer, less polluting vehicles.

The Ministry also approved the policy of deregistration and scrapping of vehicles owned by Government department and PSU, which are above 15 years in age. It is to be notified, and will come into effect from April 2022.

Commercial vehicles, which constitute close to 5 percent of the total vehicle fleet contribute 65-70 percent of vehicular pollution.

The older fleet manufactured before 2000 constitute less that 1 percent of the total fleet but contributes around 15 percent of total vehicular pollution.

These older vehicles generate 10-25 times more pollution than newer vehicles.