An Analysis of Vehicle Scrappage Policy, 2021

The most cost-effective mode of transport in India is road transport, largely because roadways reach almost every remote location. Road transport is the dominant segment of India's transport sector, contributing about 3.06 per cent to GVA against the total transport-sector contribution of 4.77 per cent for 2017-18 - well ahead of Railways (0.75 per cent), Air Transport (0.15 per cent) and Water Transport (0.06 per cent).

India has a network of over 62,15,797 kilometres of roads (as of 31 March 2018), the second-largest road network in the world after the United States. Older vehicles plying on these roads are more prone to breakdowns, malfunction and safety failures - those manufactured prior to 2005 carry minimal to no safety features. A 2019 report by the Transport Research Wing of the Ministry of Road Transport and Highways noted that vehicles more than 10 years old accounted for 41% of accident-related deaths, and old vehicles are roughly 12 times more polluting than new ones. Against this backdrop, the Government of India introduced the Vehicle Scrappage Policy to phase out older vehicles.

History behind the Policy

India is the seventh-largest country by area and the second-most populous, with a population of about 1.4 billion. Owning a car is closely tied to prestige, and India is one of the world's largest vehicle markets - around 2.94 million cars and commercial vehicles were sold in 2020 alone. Yet the country never had a policy for scrapping and effectively disposing of old vehicles, even though an estimated 80 trucks are dismantled daily.

The Vehicle Scrappage Policy was introduced in the Lok Sabha on 18 March 2021 by Shri Nitin Gadkari, Minister of Road Transport and Highways. It had been in the pipeline since 2015, when the National Green Tribunal (Principal Bench, New Delhi), by its order dated 7 April 2015, banned all diesel vehicles over 10 years old from plying in Delhi-NCR as the region's air quality deteriorated. That order was challenged before the Supreme Court and upheld.

By its order dated 29 October 2018 in Writ Petition (Civil) No. 13029 of 1985 (M. C. Mehta v. Union of India & Ors.), the Supreme Court directed that, in line with the NGT's 2015 order, all diesel vehicles over 10 years old and petrol vehicles over 15 years old shall not ply in Delhi-NCR, to reduce the use of BS-I and BS-II vehicles. Non-compliance attracts a fine of Rs. 10,000 per offending vehicle and scrapping of the vehicle. The Court also directed the Central Government to set up a policy and facility for End-of-Life (EOL) vehicles - which led to the Vehicle Scrappage Policy.

Features of the Policy

The Policy was announced by Finance Minister Shri Nirmala Sitharaman in the Union Budget 2021 and launched by Prime Minister Shri Narendra Modi on 12 August 2021 at the Gujarat investor summit, who described it as a significant step towards 'Atmanirbhar Bharat'. Alongside it, India shifted from BS-IV to BS-VI emission norms; the sale of BS-IV vehicles was permitted only until April 2020, after which such sales became illegal.

Key features of the Policy include:

• No vehicle is scrapped merely on the basis of 'age' - the governing parameter is the 'fitness of the vehicle'
• Fitness tests are mandatory for both commercial and private vehicles
• Fitness tests apply after 15 years for commercial vehicles and 20 years for private vehicles from the date of registration
• In Delhi, diesel vehicles over 10 years and petrol vehicles over 15 years cannot be used (the fitness-test option does not apply there)
• Compulsory scrapping of all Government four-wheelers more than 15 years old (not applicable to two-wheelers)
• Fitness tests are carried out only at Government-certified fitness centres
• Appointments and test reports are handled online
• A vehicle that fails is given a re-fitness chance; a second failure means compulsory scrapping
• Registered scrapping facilities are to be established across the country
• Scrapping can be done anywhere in the country, regardless of the place of registration

The Policy also benefits vehicle owners through:

• A Scrappage Certificate issued on successful scrapping of an EOL vehicle
• A complete waiver on registration charges for a new BS-VI vehicle purchased after scrapping
• Up to 25% rebate on road tax by the Centre and State Governments
• Scrap value of roughly 5% of a new vehicle's price paid to the certificate holder
• Lower maintenance, better safety features and lower emissions from newer vehicles

Framed by the Prime Minister as 'Waste to Wealth' (kachre se kanchan), the Policy is built on the idea of reuse, recycle and recovery - boosting manufacturing, creating employment and generating GST revenue. It is expected to affect around 40 lakh vehicles in Karnataka alone (the highest, at 39.4 lakh over 20 years old), followed by Delhi, Uttar Pradesh, Kerala, Tamil Nadu and Punjab.

Implementation of the Policy

Scrapping under the Policy is voluntary, not mandatory, for private owners. However, scrapping infrastructure is still being built out - currently there are only a few registered facilities, including centres in Kurla (Mumbai) and Delhi. Manufacturers such as Mahindra, Maruti Suzuki and Tata Motors have moved to establish registered scrapping facilities: Mahindra's Cero Recycling plant had first-mover advantage, Maruti Suzuki Toyotsu began operations in Noida (capacity around 24,000 units a year), and Tata Motors signed an MoU with the Maharashtra government. An estimated 70 scrapping centres are expected over the next five years.

The Policy applies to State/Central Government and PSU vehicles from 1 April 2022, to heavy commercial vehicles from 1 April 2023, and to private vehicles older than 20 years from 1 June 2024.

Exceptions

Delhi. Because of the Supreme Court's order in M. C. Mehta v. Union of India, diesel vehicles over 10 years and petrol vehicles over 15 years cannot ply in Delhi and must be compulsorily scrapped after their EOL cycle. The fitness-test option available in other States does not apply here - a five-year disadvantage for diesel vehicles over petrol vehicles.

Vintage vehicles. India has a rich heritage of vintage cars, often preserved as family heirlooms. Under the draft 'Regulation of Vintage Motor Vehicles Order, 2019', vehicles more than 50 years old from the date of first registration are exempted from the provisions of the Motor Vehicles Act, 1988 and the Central Motor Vehicle Rules, 1989 - and are therefore also exempt from the Vehicle Scrappage Policy.

Conclusion and suggestions

The automotive sector has faced significant regulatory change over recent years, and the Vehicle Scrappage Policy - long overdue - is now being rolled out in a phased manner. The incentives are designed to encourage owners to scrap old vehicles, boosting demand for raw materials, reducing dependence on imports and creating jobs. Proper implementation is, however, the sine qua non of the Policy's success. The author suggests stronger GST incentives for scrappage-certificate holders purchasing new vehicles, given how heavily automobiles are taxed in India. Done well, the Policy will meaningfully advance the goal of an 'Atmanirbhar Bharat'.

This article was originally published in the International Journal of Science and Research (IJSR), Volume 11 Issue 7, July 2022 (ISSN: 2319-7064), authored by Adv. Soumitra C. Jadhav, Practicing Advocate, District and Sessions Court, Pune.