Here's How India's Vehicle Scrappage Policy Will Help Make Car Ownership More Sustainable

Indian automobile industry is experiencing a rapid change in the way it operates. Part of it can be blamed on the monumental decline in sales that the industry has been undergoing. Another part is pushed by the enormous levels of air pollution seen in the country, which takes centre stage for the government at present. Old and polluting vehicles are extremely undesired while electric vehicles are being promoted.

In the midst, the central government has come up with a possible solution. A formal scrappage policy for India is being worked upon, a first of its kind in the country¡¯s history. But what is it? How will it address the ongoing struggles? Will it have any undesired impact? Here, we try to look at all the answers around India¡¯s upcoming vehicle scrappage policy.

(Representative Image: Reuters)

What is a scrappage policy?

As the name suggests, a scrappage policy will lay down guidelines around how old vehicles in the country are scrapped or discarded. This will include presets for the infrastructure requirements such as vehicle scrappage facilities in the country.

What will, however, push the scrappage policy is an underlying program funded by the government to replace old vehicles with new ones.

In practicality, the government will have to offer incentives to those opting to scrap their old vehicles and buying new ones in their place. On the flip side, it will also have to take steps to curb the sale and use of very old vehicles in the country, mostly through higher road taxes for the same.

How is it good?

The scrappage policy is a step in the right direction. In its very basic essence, the policy can bring in a three-way advantage for the country, encompassing environmental benefits, economic growth as well as job production. Here is how:

Old vehicles generally tend to produce more emissions with respect to their newer counterparts. This can be accredited to the tighter emissions norms which the new vehicles have to comply with. The fact that old engines tend to lose their efficiency in filtering emissions also adds up to this.

Hence, the scrappage policy looks to get rid of these old and polluting vehicles. Due to factors mentioned above, doing so will obviously lower the emissions being produced through the transportation in the country.

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Another plus is the fact that all the material obtained from these scrapped vehicles can be reused in the manufacturing of new ones. This will in turn reduce the need for fresh mineral resources and the mining activities associated with obtaining them.

Secondly, the policy will propel automobile sales in the country, which have been on the low side for the past few years. An associated benefit to this is of course the rise in job opportunities, both in the automobile sector with its growth, as well as with the establishment of new scrapping centres in the country. So in short, a win win and win!

Global examples

The policy is not unheard of, as several nations across the globe have such a system in place already. Many started it back in 2008, post the recession that affected economies globally. The associated loss to the automobile and manufacturing sector mandated the nations to do something about the dipping sales. The policies in such nations now stand more than a decade old.

In the United States, the policy is called the 'Car Allowance Rebate System (CARS)¡¯ or informally as ¡®cash for clunkers¡¯. A similar program in Canada takes the name of ¡®Retire Your Ride¡¯. China, France, Germany, Italy, Japan and many others followed. Germany recorded the largest scrappage program of all, offering a scrappage premium of €2,500 (~Rs 1.96 lakh) upon the scrappage of every car older than nine years. The results were evident, as the car market in the country experienced an increase of 40% in sales year-on-year (March 2008 to March 2009).

As per a report by Economist, the scrappage premium for the European countries ranged from €1000 (Rs 78,000) to €4500 (Rs 3.5 lakh) with France and Spain offering these premiums respectively. The vehicle age mentioned for the eligible vehicles is of course, also different in each case.

It is apparent that the policy has worked for many nations in the last decade. India, now coming up with its own policy around vehicle scrappage will, however, have to come up with a set budget to push-start the initiative. It was only after spending billions of dollars in such incentives that the countries mentioned above could make the policy work for a considerable impact.

Indian story

India¡¯s vehicle scrappage policy is still in the draft stage and going by developments over time, will be changed accordingly. For now, they mention basic norms for scrapping centres like the locations, permissions required and mandatory money deposits.

An ET report mentions that these guidelines are being prepared by the transport ministry, after consultation with the ministry of environment, forest and climate change and the ministry of steel.

As per these guidelines, scrapping centres will only be allowed to set up in industrial areas and not in busy, residential areas. Moreover, permission from the state transport department will be required for the scrapping centre and the owner will need to furnish earnest money deposit (EMD), proposed to be between Rs 10 lakh to Rs 1 crore, to state governments.

(Representative Image: Reuters)

Benefits for owners

No incentives for the owners of such vehicles have been mentioned in the draft policy as of now. This, however, is expected to change as it will mark a necessary step in making the scrappage policy a success.

In a July iteration of the policy proposed by the Ministry of Road Transport and Highways, a waiver on the registration fee of any new vehicle was proposed for buyers producing valid scrapping certificate of their old vehicle issued by an authorised scrapping agency.

In addition to the government, OEMs having their own scrapping centres might offer incentives to those using their scrapping services or buying their vehicles in the future. In short, a benefit for scrapping an end-of-life vehicle and buying a new one will most likely have an associated benefit post the scrappage policy is in effect.

OEMs are already scrambling to set up such centres of their own. Mahindra has partnered with Metal Scrap Trade Corporation Ltd (MSTC) to set up scrappage centres branded as Mahindra Accelo. These are to be the first government authorised scrappage centre in the country. Following Mahindra, a new scrapping centre through a joint venture between Maruti Suzuki India Limited and Toyota Tsusho Group has also been announced for Noida, which will initially employ a staff of 50.

Environmental impact

With vehicles being scrapped, the raw materials required for building of new cars, trucks and two-wheelers will consist of recycled metal from old cars. Metals like steel and aluminium can be easily recycled and are the materials of choice for car construction. In fact, steel is one of the most recycled metals in the world. Iron-ore extraction has a deep environmental impact, right from mining, transportation to extraction. By products of metal extraction pollute the air and water bodies with particulate matter and acid respectively.

Car makers also rely on plastic parts that helps weight reduction and improving emissions. Nearly a third of all parts in a modern car are now made of plastic. Cars also contain a large amount of plastic material in the cabin and all of this plastic can be recycled for new cars. If not recycled, the plastic ends up polluting the oceans.

Possible challenges

Like any initiative, vehicle scrappage policy in India is bound to face some challenges at first. For starters, if the centre decides to go with no incentives for those opting to get their vehicles scrapped, the policy might not attract as many vehicle owners as desired. After all, retaining an old vehicle might prove to be economically easier for many than buying a brand new one. The same effect can be observed if no age limit for a mandatory scrappage of vehicles will be put through the policy.

On the contrary, if an age limit is put, it will have a huge impact on the business of transportation in the country. Those having their own fleet with a considerable number of heavy vehicles like trucks and buses, will find it to be a huge investment to get them scrapped in exchange for new vehicles. The move, then, will face certain resilience.

On the other hand, if the number of takers is exponential, a lack of scrappage centres might be observed. This, however, can be eliminated with increased participation of the vehicle owners and a reciprocating business boom! But, only over time.

So that's all that is to know about the current status of India's vehicle scrappage policy. Hopefully it will boost sales and its impact on the environment will be visible in a few years' time.

Illustration By Ranak Mann