The vehicle scrappage policy is a government-funded programme that aims to replace older vehicles on Indian roads. The policy is expected to reduce pollution, create jobs, and increase demand for new vehicles. Several countries, including the United States, Germany, Canada, and China, have implemented vehicle scrappage policies in order to stimulate their respective automotive industries and reduce vehicular pollution. In the United States, for example, the Car Allowance Rebate System (CARS), also known as the Cash for Clunkers programme, offers credit incentives for scrapping older vehicles and replacing them with newer, more fuel-efficient vehicles.

In her annual budget speech on February 1, 2021, Finance Minister Nirmala Sitharaman stated, “the government will announce a voluntary vehicle scrapping policy to phase out old and unfit vehicles.” She went on to say that the move will help to encourage the use of fuel-efficient, environmentally-friendly vehicles, reducing vehicular pollution and the cost of oil imports.

Nitin Gadkari, Minister for Road Transport and Highways, introduced the much-anticipated vehicle scrappage scheme in the Lok Sabha on March 18, 2021. According to the new policy, commercial vehicles older than 15 years and passenger vehicles older than 20 years must be scrapped if they fail fitness and emission tests. The plan is to phase out cars and commercial vehicles older than 15-20 years in order to reduce urban pollution and boost automotive sales, which have been slow during India’s post-COVID recovery period. Furthermore, the vehicle scrappage policy is said to be part of a stimulus package heavily requested by original equipment manufacturers (OEMs) in order to infuse demand.

Circular Economy 

A circular economy is based on resource reuse, sharing, repair, refurbishment, remanufacturing, and recycling to create a closed-loop system that reduces resource use, waste generation, pollution, and carbon emissions. 

Apart from metals such as iron and steel, when a car is scrapped, many other parts may emerge that can be refurbished and repurposed. Scrap steel, even seats and plastic parts have value in the scrap economy. It is similar to the economic activity of scrapping old ships, such as in Gujarat’s Alang shipbreaking yard. 

There are 51 lakh light motor vehicles in India that are more than 20 years old, and 34 lakh that are more than 15 years old. According to data from the Ministry of Road Transport and Highways, approximately 17 lakh medium and heavy commercial vehicles older than 15 years lack valid fitness certificates.

Why the scrappage policy?

The government envisions that the scrappage certificate will entitle the owner to something additional, such as a tax rebate and a discount on a new automobile, to enable vehicle owners to find a cause to retire old vehicles. The certificate is transferable, which means it can be utilised by anybody, not just the wrecked vehicle’s owner.

When will they enforce it?

The government has issued guidelines on what types of Automated Fitness Centers should be built and who can build them. It has also proposed how scrapping yards should be organised. It will give India Inc. time to develop an environment that allows for organic testing and eventual scrapping without putting consumers under strain.

As a result, heavy commercial vehicle testing will begin in April 2023, and testing of other vehicle types, such as personal vehicles, will begin in June 2024, in a gradual way. Within the government, there are discussions of delaying the implementation by a few months.

Economic and environmental benefits

Scrappage policies have boosted demand in the vehicle manufacturing sector around the world, particularly in Europe and the United States. This has also been a tool for dealing with the manufacturing sector’s slowdown and reduced consumer spending as a result of the recession. Furthermore, there are spelled-out environmental benefits, as newer cars have improved emission limits and fuel efficiency. 

What happens if an old personal vehicle passes the safety inspection?

In that instance, the owner can keep using it, but the re-registration fees will be substantially higher. Re-Registration fees for all vehicles were planned to be raised from eight to roughly twenty times in a draught notification released in March, depending on the type of vehicle. These fees will begin in October of this year. After 15 years, personal automobiles, for example, are eligible for re-registration.

Incentives for scrapping old vehicles 

  • Vehicle manufacturers can offer up to a 5% discount to customers who purchase new vehicles.
  • Zero new registration charge Scrap value equal to 4-6 percent of new vehicle ex-showroom price
  • For personal and commercial automobiles, states can offer up to a 25% and 15% road tax discount, respectively.
  • Maintenance costs are lower, and fuel savings are higher.

Disincentives for maintaining old vehicles include:

  • States have the authority to collect an additional ‘Green Tax.’
  • Increase in the cost of renewing a private vehicle’s registration
  • Renewals of commercial vehicle fitness certifications are on the rise.
  • Unfit vehicles are automatically deregistered.

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