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Vehicle Scrappage Policy (18 March 2021)

Vehicle Scrappage Policy (18 March 2021)

Context:

  • Recently, Union Transport Minister Nitin Gadkari announced the much awaited vehicle scrappage policy. Speaking in Lok Sabha, he said the policy aims to keep old polluting vehicles from plying on roads. 

Background:

  • There are 51 lakh vehicles in India which are older than 20 years, 34 lakh vehicles which are more than 15 years old and around 17 lakh vehicles older than 15 years, but do not have vehicle fitness certificates.

  • Old vehicles pollute air 10-12 times more compared to vehicles that are fit, and also pose a risk for road safety. 

Summary of the Debate

Key provisions of the Vehicle Scrappage Policy:

  • Personal vehicles older than 20 years and commercial vehicles older than 15 years will have to undergo a fitness test at the ‘Automated Fitness Centres’.

  • Automated vehicle fitness centres belong to the government will issue certificates after conducting fitness tests.

  • Each fitness certificate is valid for five years. After that vehicle will undergo another fitness test.

  • The government will not provide renewed Registration Certificates (RC), if a vehicle fails the fitness test.

  • Vehicles that fail to pass the test will be declared as ‘end-of-life vehicles’, which would mean that the vehicle would have to be recycled.

The policy has dual system of incentives and disincentives:

Incentives: 

  • When the older vehicles are scrapped then the scrapping centre will offer some value for it, it will be around 4-6 percent of the ex-showroom price of the new vehicle.

  • Centre will write to the state governments to offer upto 25 percent rebate in road tax for personal vehicles and upto 50 percent rebate for commercial vehicles.

  • Government will also ask the Original Equipment Manufacturers (OEMs) of the auto industry to provide a discount on the purchase of new vehicles against the scrapping certificate of old vehicles.

  • When a vehicle is scrapped, then against the scrapping certificate, there will be waiver of registration fees for the new vehicles.

Disincentives:

  • After 15 years, when the personal vehicles goes for re-registration then there is registration renewable fees has to be paid. So, that has been proposed to increase.

  • The fitness testing fees will also be increased.

  • The fitness certification fees will also be increased.

Vehicle Scrapping Policy

Significance of the policy:

  • Owners of old vehicles will get strong incentives to scrap old and unfit vehicles.

  • After shifting to newer vehicles, the fuel consumption and the maintenance cost will be lower.

  • Newer vehicle will be more environment friendly. So, there will be reduction in vehicular pollution.

  • Low cost raw materials will be obtained from the scrap which can be used in other industries like steel and rare earth metal.

  • It is estimated that this step will boost investment by about Rs 10, 000 crore and will create 35,000 more jobs.

  • Scrapping old vehicles will lead to increased demands for newer vehicles, which will boost the auto sector.

Potential challenges:

  • Large number of stakeholders: On one side, there are original equipment manufacturers and their dealers and on the other side, there are government authorities and the state governments, scrapping centres, RTOs and fitness centres. So, entire value chain has to be synchronized very well.

  • Investment: Fitness centres will be based on technology which will require certain level of investment.

  • OEMs are expected to contribute 5 percent of ex-showroom price if a customer brings the scrapping certificate, which OEMs considers it on higher side.

  • Scrapping and fitness centres: Government is planning to Set up 50 scrapping centres by December 2023 and 75 fitness centres by March 2023, which will be a bigger challenge.

Conclusion:

  • The automobile companies, Union and state governments will have to come together to form a unique ecosystem consisting of fitness centres and scrap yards to judge the condition of vehicles and then subsequently scrap it. State governments can give more guided push by giving additional support in terms of additional incentives when a vehicle is scrapped.

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