By Parul Nagpal and Gulsheen Kaur
The vehicle scrappage policy 2021 has been formed with multidimensional targets. Eliminating polluting vehicles from Indian roads while boosting the recycling of raw materials and reusing them to reduce pollution in supply chain is one of them.
India with its huge population is an attractive destination for the automobile industry and is expected to be the world’s third-largest automotive market in terms of volume by 2026. India has a diverse automotive industry comprising vehicle manufacturers (ranging from two-wheelers to four-wheelers and commercial vehicles), auto component manufacturers and international purchasing offices, etc.
However, unfortunately, this sector has been the primary contributor to air pollution in India. In order to continue the expansion of the automobile industry and to curb the negative impact of the industry on the environment, the Government has been actively introducing varied policies such as the FAME II (Faster Adoption and Manufacturing of Electric Vehicles in India) scheme, Vehicle Scrappage Policy 2021, state subsidies to the end customers for purchase of EVs etc.
Recently, in support of India’s “Green India” mission, the Ministry of Road Transport & Highway (MoRTH) launched a vehicle scrappage policy on August 13th, 2021. Whilst this new policy aims to remove older vehicles to reduce pollution and increase road safety, it also gives an impetus to the automobile industry by increasing new vehicle sales.
Under the said policy, after a defined period, the old vehicles will have to undergo a fitness test through the automated centres designated by the government. During the fitness test, the vehicles are tested comprehensively on various parameters including tests of headlamp dipped beam, headlamps assembly, top lights, parking lights, stop lights, etc.
In case the vehicle fails the fitness test, it will be termed as an ‘End-of-Life-Vehicle’ and will be liable to be scrapped at Registered Vehicle Scrapping Facilities. Moreover, in case the vehicle passes the fitness test, the vehicle owner may opt to renew the vehicle registration upon paying the exorbitant renewal fees which may extend to INR 40,000 in the case of certain motor vehicles. Further, MoRTH has proposed to levy a “Green Tax” at the time of renewal of the fitness certificate. In the case of Transport Vehicles older than 8 years, the green tax may extend to 10-25% of the Road Tax annually, over and above the regular taxes collected.
In addition, as an incentive for scrapping the old vehicles, the concession is stipulated by MoRTH in the motor vehicle tax for a new vehicle registered against submission of a “Certificate of Deposit”, which is issued by a Registered Vehicle Scrapping Facility. This concession is as below:
- Up to twenty-five per cent, in case of non-transport (personal) vehicles
- Up to fifteen per cent, in case of transport (commercial) vehicles
The concession shall be available for up to eight years, in the case of transport vehicles, and up to fifteen years, in the case of non-transport vehicles.
Besides the above benefits, the vehicle owner may also be entitled to a discount on the new vehicle cost upon scrapping of the old vehicles.
Furthermore, the Government also expects to reap the following benefits from the said policy:
- Scrapping unfit vehicles mean better air quality and less air pollution
- As the old vehicles will be scrapped, demand will be there for new vehicles
- With the car scrappage policy implemented, there will be job opportunities. For instance, manpower will be required for the scrapping of vehicles
- The industry of recycling will lead to high revenue
- The new vehicles will be safe in comparison to the old vehicles
Additionally, for the purpose of the scrappage policy, MoRTH has categorised the motor vehicles into Commercial Vehicles, Government Vehicles, Private Vehicles and Vintage Vehicles. Upon completion of the stipulated lifespan of each category of vehicle, the vehicles will have to undergo a fitness test.
In a nutshell, it is expected that there will be initial challenges which require the acceptability of various stakeholders to the new policy. However, in light of the incentives provided by the Government, the vehicle scrappage policy 2021 appears to be a win-win policy for both the old vehicle owners as well as the Government.
(Parul Nagpal is Director at EY. Gulsheen Kaur is Consultant at EY)
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