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Vehicle scrappage policy: A step in the right direction

vehicle scrappage policy

By Sukhpal Singh

India’s vehicle scrappage policy plans to take millions of old gas-guzzling vehicles off the roads. These include old polluting cars, buses and trucks. The vehicle scrappage policy could create a lot of business and job opportunities driving the industry and its related economy in the right direction.

The health effects of air pollution imperil human lives. The fact is well-documented.

~ Eddie Bernice Johnson

Indeed, air pollution affects human lives adversely and who better knows than us Indians, where at least 140 million people breathe air that is 10 times or more over the WHO safe limit. Consequently, in 2020, out of the 30 most polluted cities in the world, 22 were in India.

Among various causes of emissions, vehicular emissions are one of the major contributors to air pollution. The failure of public transport systems to meet India’s transportation demand due to rapid urbanization has led to an increase in transportation demand. Consequently, the use of personal vehicles has increased dramatically in India leading to increased vehicular emissions.

India has tried to control and regulate the vehicular emissions through various measures, including India’sjump directly from Bharat Stage (BS) IV emissions standards to BS-VI in April 2020, which has reduced emissions from the new vehicle fleet by nearly 60–90 per cent, depending on the pollutant and vehicle segment and would help to reduce on-road emissions substantially over time with the increased number of the new fleet of BS-VI vehicles hitting the road.

This brings attention to the old vehicle fleet being used extensively in India, the accurate quantification of which is a challenge in India. however, India has around:

As the older vehicles pollute the environment 10 to 12 times more than fit vehicles and pose a risk to road safety, there is a need to replace the old fleet with the new fleet in a phased manner.

Many countries, including the likes of Germany, the USA, Japan, the UK and Russia, have introduced scrappage programmes with the aim of removing inefficient, more polluting vehicles from the road while acting as a stimulus for the automobile industry.

The common phenomena were to enable the trading of old vehicles for the new ones with scrappage offers being offered by the vehicle’s dealers and manufacturers, who in turn were compensated by the Governments.

Currently, only a few cities, such as Delhi, Kolkata, that too upon the specific direction of the judiciary (Supreme court, High Courts or National Green Tribunal (NGT), is directing action on air pollution have issued specific directions to cap the age of the old vehicles for a phase-out.

In addition, state governments like Maharashtra and Karnataka have imposed a green tax that increases the age of vehicles so as to disincentives the use of old Vehicles.

However, these city-based approaches can create a situation when older vehicles phased out from one city move to cleaner regions of the country and defeating the national purpose of air pollution eliminations.

Thus, there is a need for a national strategy that comprehensively provides for the infrastructure for scrapping and recycling of the grossly polluting vehicles.

Vehicle Scrappage Policy, 2021

Accordingly, the Road Transport & Highways Minister, Nitin Gadkari has introduced a Voluntary Vehicle-Fleet Modernization Program (VVMP) or “Vehicle Scrappage Policy” which is aimed at creating an Eco-System for phasing out of Unfit and Polluting Vehicles, in Lok Sabha on March 18, 2021.

The objectives of the vehicle scrappage policy are to:

The vehicle scrappage policy proposes for de-registration of commercial vehicles be after 15 years and of private vehicles after 20 years in case of failure to get the fitness certificate and it also proposes for increased fees for fitness certificate and fitness test may be applicable for commercial vehicles and private vehicles 15 year onwards from the date of initial registration.

In addition, the scheme shall provide strong incentives to owners of old vehicles to scrap old and unfit vehicles through registered scrapping centres, which shall provide the owners with a scrapping certificate.

Some of these incentives include:

A) Scrap Value for the old vehicle given by the scrapping centre, which is approximately 4-6% of the ex-showroom price of a new vehicle.

B) The state governments may be advised to offer a road- tax rebate of up to 25% for personal vehicles and up to 15% for commercial vehicles

C) The vehicle manufacturers are also advised for providing a discount of 5% on the purchase of a new vehicle against the scrapping certificate.

D) In addition, the registration fees may also be waived for purchase of new vehicle against the scrapping certificate.

To boost auto demand and create employment

This proposed vehicle scrappage policy, coupled with the incentives to the buyers, is not only expected to reduce the old and grossly polluting vehicles off-road but is also expected to boost the sales of the original equipment manufacturers and to create more job opportunities.

The ecosystem is expected to attract additional investments of around Rs 10,000 Crore and 35,000 job opportunities. The draft vehicle scrappage policy has been notified and is open for public comments.

Conclusion

The Vehicle Scrappage Policy, 2021 can be regarded as a crucial step in the right direction to combat vehicular air pollution and to indirectly boost the situation of the automobile sector.

However, the implementation of this policy also depends upon the discretion of the ‘State Governments’ who are being advised to offer tax rebates and registration fees waiver on the purchase of new vehicles against the scrappage certificate.

As the adoption of the vehicle scrappage policy could have an impact on the commercials of the States, it would be interesting to see what criteria of cost-sharing between the central government and the state government would be agreed upon in the near future.

Also Read: What should be automobile dealerships’ core focus area in the post-Covid world?

(Sukhpal Singh is a Senior Manager with indirect tax practice of Ernst & Young and is a part of the Infrastructure, Industrial & Consumer Products unit.)

(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Autofintechs.com. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.)

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