Vehicle Scrapping Policy: A Financial Aid to the Automotive Industry?

If you have had followed the Union Budget 2020-2021, you might be familiar with the ‘Vehicle Scrapping Policy’. While the pandemic was no less than a lever punch to the economy of the world, the automotive was one of the worst affected. With the lack of sales, companies decreasing their work army, and more such horrific incidents, the industry needed some type of magic potion to kick back in. With the start of February and the announcement of India’s first paperless budget, the automotive industry was looking for some rebound aid. Then the Finance Minister of India, Nirmala Sitharaman announced the premeditated vehicle scrapping policy.

But, there are still a million questions running in several minds, and this article will introduce many of such questions.

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What is Vehicle Scrapping Policy?

The Vehicle Scrappage Policy had various propositions that included:

1. Under voluntary concern, the vehicle scrapping policy will have fitness tests for private vehicles- which are over 20 years old and commercial vehicles-which is 15 years old.
2. The vehicle scrapping policy’s fitness test will potentially be fully automated in fitness facilities, set up on a public-private partnership(PPP) basis involving both private firms and state governments. The fitness test will prohibit any scope of human intervention or fudging of results.
3. Citizens who chose to drive a vehicle that fails in the automated fitness tests will be heavily penalized and their vehicles can be impounded.
4. Additionally, vehicles that are older than 8 years, and pass the automated fitness test in-vehicle scrapping policy, will be subjected to a ‘green tax’. This will shell out an additional 10-25 percent of road tax at the time of renewal of the vehicle’s fitness certificate.
5. Citizens opting for a voluntary vehicle scrapping policy, having their old vehicle scrapped, will be eligible for benefits and incentives as part of the policy when they purchase a new vehicle.
6. The vehicle scrapping policy is subjected to promote sales of new and efficient vehicles, with lower emissions, as well as to slash India’s Rs 10 lakh crore expenditure on crude imports.
7. The vehicle scrapping policy, with its implementation, is adjudged to scrap around 1 crore aging vehicles, according to Union Minister of Road Transport and Highway, Nitin Gadkari.
8. Gadkari said that India will see a boost in India’s automotive industry through the vehicle scrapping policy, hoisting the industry’s turnover by 30 percent to 10 lakh crores in the coming years.
9. The industry’s growth will also accompany by the rise of up to 50,000 jobs and investment of around Rs 10,000 crore are expected to be generated
10. Gadkari added that the vehicle scrapping policy will put India’s automotive industry amongst those offering the highest employment opportunities in the country.

With this gist of the vehicle scrapping policy, it is clear that the automotive industry will experience a favorable boost in terms of job opportunities, sales, and even investments. But with this, how does the vehicle scrapping policy benefit the citizens of India, the common man?

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Benefits

The vehicle scrapping policy is ought to bring various opportunities and benefits to not just the automotive industry, but also the citizens, and more. According to an HDFC Bank study, as mentioned by the auto Economic Times, the market for vehicle scrappage and recycling is estimated at $6 billion, with the implementation of the policy.  According to it, if the policy is defined well, 9 million vehicles could go off roads by fiscal 2021 and 28 million by 2025, largely comprising two-wheelers.

It would reduce carbon dioxide emission by 17% and cut particulate matter in the air by 24%. Also, if half the Bharat Stage-II and III vehicles go off the roads, it would save 8 million tonnes of oil a year. Apart from metals, there will be additional businesses on the rise from recycling plastic, rubber, and other parts of the vehicle.

According to Nitin Gadkari, MoRTH, the policy would soon be put before the Cabinet for approval. The government has expected to recycle various metals like steel, copper, and aluminum from the scrapped vehicles to help reduce their imports.

This will not only lessen the burden of import duties of raw materials but also the roads will get ridden of old vehicles which will reduce the air pollution and the government’s oil bill, as the old vehicles will be scrapped and replaced by new, efficient vehicles. The vehicle scrapping policy will create a significant scale of new investors in the existing market.

It is yet to announced the various benefits that the citizens, the volunteers to the vehicle scrapping policy, will have through this policy. Various discussions about discounts, lesser interests on car loans and more have been made. Business Today noted, "Those going for the scrapping of their vehicles will get some benefits from the manufacturers.

In fact, scrapping policy will prove to be a boon... not only it will boost the economy, benefit the automobile sector but also check vehicular pollution," Gadkari, who also holds MSME portfolio, told PTI

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Have there been initiatives in the past?

According to auto economic times, the US government was obliged with the scrappage initiative after the global financial crisis, the $3 billion cash for clunkers’ program — pulled general Motors and Ford back from crisis, with sales spiking 30-40% in the quarter following the implementation. Similarly in Germany, such an initiative boosted growth to 40% but it cost the government $7.1 billion. Under such a program, the US offered incentives of $3,500-4,500 for scrapping an old vehicle, while in Germany, it was about 2,500 euros.

How to scrap the cars?

The vehicle scrapping policy is yet to undergo any practice. According to the policy, fully automated fitness tests will determine the fate of vehicles, and this will be done on a public-private partnership(PPP) basis including both private firms and state governments.

The vehicles that pass the fitness test and are 8 years old or more will be subjected to “green tax”, accounting for 10-25% of road tax at the time of renewal of the vehicle’s fitness certificate. The MoRTH, Nitin Gadkari said that the finer details of the policy will be soon unveiled by him.

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RTO Rule for Scrapping

The vehicle scrapping policy is accompanied by various rules. The primary one, that privates vehicles-older than 20 years and commercial vehicle- over 15 years old will be part of an automated fitness test. In case the vehicle fails the test, it will be subject to scrapping. The RTO rules for scrapping and deregistration of vehicle includes:

1. The car owner will be obliged to submit a written letter to the authorized RTO about the car scrapping.
2. The owners will have to surrender the original RC of the car, alongside its chassis number that was cut from the vehicle at the time of scrapping.
3. The scrap dealer’s confirmation on letterhead with the complete address is also required. The pictures of the scrap can be submitted at this time.
4. The vehicle owner should also submit an affidavit with the application for scrap and de-registration. The affidavit will mention that the car is not under any loan, insurance claims, or pending court cases. The affidavit will also confirm that the vehicle is not involved in thefts. 

For other complexities of car scrapping, omitting the vehicle scrapping policy, refer here.

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What about the vintage vehicles?

Cars like Hindustan Ambassador, Premier Padmini, and Maruti Suzuki SS80 are part of India’s industrial and cultural heritage. These are some of the popular nameplates, that prevailed on the roads of the Indian subcontinent 30-50 years from now. But this makes them subjected to vehicle scrapping policy.

According to Diljeet Titus, General Secretary HMCI (Heritage Motoring Club of India), "All motor vehicles which are at least 50 years old from the date of their first registration and which are registered as "vintage motor vehicles" under the proposed new registration rules, will not be subject to the scrapping policy.

Vehicles will be approved for such registration after evaluation by a three-person committee comprising the Transport Secretary/ Commissioner, a representative of an automobile association, and an expert if needed".

Just like Overdrive, the common public will be concerned about the policy’s take on vehicles between 30 and 49 years of age.

The vehicle scrapping policy will benefit the automotive industry, recycling leaders, and lower the pollution levels by a substantial amount. But it’s still unsure, how the policy will benefit the consumers. For that, we will have to wait for the final announcements on the policy by the MORTH, Nitin Gadkari, and the implementation of the policy by the government in assistance to RTO.