FPJ Edit: Scrappage policy is well begun but has miles to go

India has taken the first steps towards making its air cleaner and its roads safer by introducing the much-awaited and long-delayed vehicle scrappage policy. Under the new “voluntary fleet modernisation programme” announced by Union Transport Minister Nitin Gadkari in the Lok Sabha on Thursday, a regime of mandatory fitness testing will be put in place for all vehicles once they reach a specified age.

For commercial vehicles, the age limit has been fixed at 15 years, while for private vehicles, the limit is 20 years. In case of failure to get a fitness certificate, commercial vehicles will be de-registered after 15 years. Private vehicles will be de-registered after 20 years if found unfit or in case of failure to renew registration certificates. Any vehicle which fails the fitness test or fails to get a renewal of its registration certificate is to be declared as an ‘End of Life Vehicle’ and mandatorily scrapped.

The new fitness testing regime will come into force from October 1, 2021. For all vehicles owned by the government and public sector undertakings, the regime change starts earlier, from April 2022. In their case, vehicles over 15 years of age will be mandatorily scrapped, even if they are otherwise roadworthy. There are at least 2.37 lakh such vehicles, the minister has revealed.

The new policy will be a bonanza for automobile manufacturers. According to Gadkari, India has 51 lakh light motor vehicles which are older than 20 years, 34 lakh light motor vehicles older than 15 years, and 17 lakh medium and heavy commercial vehicles which are over 15 years old and without valid fitness certificates. Strict implementation of the fitness policy could see the automobile sector’s turnover rise from the current Rs 4.5 lakh crore to over Rs 10 lakh crore and boost the government’s GST collections by Rs 30-40,000 crore in the process.

In order to soften the blow for vehicle owners, the policy envisages a bundle of incentives and disincentives. On the incentives front, owners scrapping their vehicles will get between 4 and 6 per cent of the ex-showroom price of a new vehicle as scrap value. Further, vehicle manufacturers will be ‘advised’ to provide a 5 per cent discount on the purchase of a new vehicle against the scrapping certificate, which will also be made tradeable in case someone does not wish to replace a scrapped vehicle.

Also, state governments, which collect road tax and registration fees, are being asked to offer a road tax rebate of up to 25 per cent for personal vehicles and up to 15 per cent for commercial vehicles. On the disincentive side, it is proposed to increase the re-registration charges (after age-limit expiry) by eight to 20 times and also sharply increase the charges for fitness certificates.

The policy makes eminent sense environmentally. According to a World Bank study, India stands to lose as much as 8.5 per cent due to the impact of high atmospheric pollution, principally due to vehicular pollution. According to another study, there may be over 28 million vehicles plying on the roads without valid fitness certificates. However, the new policy’s success will depend on strict implementation. The mandatory fitness testing will have to take place in a fair, open and transparent manner, and not be treated as another avenue for rent-seeking by corrupt officials.

Overcoming India’s culture of not throwing anything away will also not be easy. Old vehicles tend to get resold down the line, moving ever deeper into rural areas, where enforcement is lax at the best of times. The proposed incentives by way of scrap value and the ‘advisory’ on discount on new vehicles (which manufacturers may circumvent by jacking up prices) may not be enough to ensure that vehicle owners see greater economic sense in scrapping an old vehicle, rather than simply sell it for the dual benefit of higher realisation and transfer of the pollution problem elsewhere. Besides, even the ‘scrap value’ of a vehicle is problematic, with valuations varying wildly across the country. Also, there is no organised formal market for used vehicles, particularly commercial vehicles.

Then there is the not-so-small challenge of scrapping the old and unfit vehicles. Currently, India has only a handful of organised scrapping yards. The rest are simply dismantled in informal scrapyards. This could lead to a worse pollution problem, leaching toxic metals and chemicals into the soil and water.

There is also the question of the impact on livelihoods. Most of the old commercial vehicles today operate in rural areas and are owned by largely single vehicle owners. Given the economics of the transport ecosystem there, they can neither afford to buy a new vehicle nor afford to charge the rates which would make them viable. Forcing mandatory scrappage will only rob them of their livelihood, without offering a viable alternative. While the policy marks a good start, these issues need to be addressed urgently if the objective of the scrappage policy are to be met in full.

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Free Press Journal