On top of the scrap heap

The eco-system is critical for policy on scrapping

The official launch of a vehicle-scrapping programme, the broad provisions for which were announced in March this year, by the prime minister at a business summit in Gujarat reflects its significance. It aims to fulfil the multiple mandate of stimulating the economy by stoking demand for new vehicles as many western economies did after 2008 and of reducing vehicular pollution in Indian towns and cities. On paper, the policy, otherwise known as Voluntary Vehicle Fleet Modernisation Programme, has the potential to achieve both aims.

First, it sets specific start dates for the programme: April 2023 for heavy commercial vehicles over 15 years old and June 2024 for private vehicles more than 20 years old. All vehicles over this age have to be off the road if they fail an automated fitness test. After that, they will be deregistered, which means they cannot run and the owner can choose to scrap them. The government policy has designed “nudge” incentives to encourage owners to scrap their “end-of-life” cars in the form of a break on registration charges on new vehicle purchases, a lower goods and services tax, a road tax rebate of up to 25 per cent for a new private vehicle, and 15 per cent for a commercial vehicle. At the same time, the policy seeks to disincentivise ownership of old vehicles that do pass the fitness test by imposing steep re-registration charges — road tax plus a green tax.

These sound intentions, however, are predicated on the fulfilment of several conditions, none of which can be taken for granted. The first is that the Motor Vehicles Act falls in the Concurrent List of the Constitution, so some of the tax breaks embedded in the policy will require the cooperation of the state governments, which levy annual or lifetime taxes on motor vehicles, and it is as yet unclear whether states are on board. Second, the country lacks the necessary eco-system, in the shape of automated fitness centres or sufficient scrapping centres. The government wants at least 718 fitness centres (i.e. one in each district) and has sanctioned 26 model centres at a cost of ~17 crore. Here, too, the cooperation of the states would be necessary. The creation of large-scale scrapping centres may be uncertain, too. Though a vibrant raddi industry exists for old vehicles, it is largely unorganised and piecemeal. An organised business linked to the policy will require large-scale logistics and real estate, which could limit the business to larger enterprises rather than micro, small, and medium enterprises.

Of course, such centres are likely to have a ready business at hand by 2023-24. The government data shows that there are 5.1 million light motor vehicles more than 20 years old and 3.4 million over 15 years old. Another 1.7 million medium and heavy commercial vehicles ply without fitness certificates. For the policy to work, it is critical for the government to come up with clear incentives for scrapping centres so that they are up and running before the policy comes into effect. Without these, the policy, which has the potential to generate a decent level of unskilled-level employment, will end up like the e-vehicles policy, where the lack of recharging centres has constrained the expansion of the industry. The proof of this policy, therefore, will lie in the detail.