The Centre is considering setting up a dedicated fund to incentivise new vehicle buyers among steps to push customers to scrap old vehicles. The shift in strategy follows tepid response to a voluntary vehicle modernisation programme started three years ago to remove more than 10 million polluting cars, buses and trucks off the roads.
A senior road ministry official told ET that several proposals are under consideration as the government wants to make a renewed push towards scrapping old vehicles. “We are seized of the fact that the scrapping value and the resale value of the vehicle have to be at par for vehicle owners to opt for scrapping,” the official said, adding various options are being discussed and a decision will be taken soon.
State governments largely permit commercial and personal vehicles to run for 12 years and 15 years, respectively. These rules mostly apply to and are implemented in larger cities. There are no regulations barring use of vehicles more than 15 years in rural areas, which has spawned a growing market for pre-owned cars in the hinterlands, limiting the scrappage aims, according to a government study.
To be sure, the Centre had outlined many schemes in its Voluntary Fleet Modernisation Programme (VVMP) announced in 2021, including discounts of up to 5% from automakers to new vehicle buyers against deposit of vehicle scrapping certificate, waiver of registration fee on new vehicle purchase, scrap value for the old vehicle equivalent to 4-6% of the ex-showroom price of the new vehicle given by the scrapping centre and refund of road tax of about 15-25% by states. These benefits were designed at incentivising consumers to scrap commercial vehicles more than 15 years old and personal vehicles more than 20 years old if they fail to pass fitness tests. However, not much has happened in terms of implementation.
Manish Raj Singhania, president, Federation of Automobile Dealers Associations (FADA) said, “First and foremost, scrapping can only happen once a vehicle is deemed unfit. There are hardly any fitness centres today to run tests to assess roadworthiness. Once these come up, the government has to make these tests mandatory to ascertain vehicle fitness. Or else, there has to be some incentive for the owner (for the programme to take off).”
Vehicle registration is linked to validity of the fitness certificate as per VVMP. Commercial vehicles need to undergo fitness tests every two years for the first eight years and annually thereafter. Valid fitness certificate is required for renewing registration of private vehicles after 15 years. Renewal is valid for five years.
A senior industry executive however said the steps outlined in VVMP are still to be entirely implemented.
“So far, there is not much in the way of incentives or penalties for owners plying old polluting vehicles. No automaker has announced any incentive for scrapping vehicles. Not many states have announced waivers in road tax on new vehicles that had been suggested by the Centre,” the executive said.
To compound matters, the current network of registered vehicle scrapping centres in some states and union territories is insufficient, while there is lack of awareness about the vehicle scrappage policy among automakers, dealers and customers.
As many as 450-500 automated vehicle testing stations and 50-75 registered vehicle scrapping facilities were targeted to be set up by private firms in partnership with states in the mid-term.
Finance ministry data shows that 86 registered vehicle scrapping facilities in 16 states /UTs have been approved under the scheme of which 43 are operational.
Hemal N Thakkar, senior practice leader and director, transport logistics and mobility, at Crisil Market Intelligence and Analytics said there are too many gaps in the existing policy. “Firstly, it is not mandatory and secondly, the policy is not lucrative enough to compel vehicle owners to go for scrapping instead of selling it,” he said.
Thakkar is of the view that the Centre will need to loosen its purse strings to give monetary incentives to individuals opting for scrapping such that the scrap value matches the market value of the vehicle.
Scrapping of about 10 million old vehicles was to reduce emissions by 15-20%, as per government estimates. The government had estimated the vehicle fleet modernisation programme will attract investments of around INR 10,000 crore and create 35,000 jobs. It has however failed to make a major impact with owners of older vehicles.
