One of the first announcements of the Union Budget 2021 has been the confirmation that the much-awaited Vehicle Scrappage Policy has been cleared by the Central government.
The voluntary scheme, which is for personal and commercial vehicles, will be applicable to 15-yearold private vehicles and 20-year-old commercial vehicles. Finance Minister Nirmal Sitharaman said that details of the scrappage scheme will shared by the Ministry soon. She added that both private vehicles and commercial vehicles over 20 and 15 years will have to undergo a fitness test at government-appointed automated vehicle fitness centres.
Meanwhile, Transport Minister Nitin Gadkari, speaking to the media, said that “"Over 51 lakh LMVs older than 20 years & 34 lakh older than 15 years to be scrapped. Also, 17 lakh M&HCVs older than 15 years are plying without a valid fitness certificate. These 1 crore vehicles will be a huge enabler for new vehicle sales.”
The goals of the Voluntary Scrappage Policy are:
1) Reduce population of old & defective vehicles on road
2) 25-30% reduction in vehicular air pollution
3) Improve road safety with new vehicles conforming to latest norms
4) Recycling metals such as aluminum & copper and reduce import dependence
The confirmation of the Vehicle Scrappage POlicy had an immediate effect on the stock prices of some vehicle manufacturers like Tata Motors, Ashok Leyland, Maruti Suzuki and Mahindra & Mahindra.
Finally a green signal to the Scrappage Policy
In May 2016, the government had floated a draft Voluntary Vehicle Fleet Modernisation Programme (V-VMP) that proposed to take 28 million decade-old vehicles off the road. A committee of secretaries (CoS) recommended to the ministry redesigning of the scheme for greater participation of states with partial support from the Centre. The CoS had suggested that the scheme may dovetail a calibrated and phased regulatory approach for capping the life of vehicles together with stricter implementation of emission norms and accordingly a revised consultation paper got in-principle nod of the PMO.
Scrappage as a growth accelerator
Vehicle scrappage essentially gets rid of old, polluting vehicles on road. Adopted by a number of developed markets, a vehicle scrappage policy is usually mandated by a government to accelerate the replacement of old, polluting vehicles by new vehicles. Such a policy also enables dual gains — stimulating the domestic automobile and automotive industry and importantly, removing inefficient, polluting vehicles from the road, paving the way for greener motoring and cleaner air.
The Indian automobile industry, which has been witnessing a sales slowdown since the past two years and is down 24% as per the latest April-December 2020 numbers, has been urging the government to introduce a vehicle scrappage policy since long. The M&HCV segment, is down 54% year on year, and will hugely benefit from such a policy.
High pollution potential of older vehicles
According to the Centre for Science and Environment (CSE), by 2025, India will have a monumental load of over 2 crore old vehicles nearing the end of their lives. These, along with other unfit vehicles, will cause huge pollution and environmental damage.
Even though the older legacy vehicles are smaller in numbers, their contribution to the pollution load from vehicles can be disproportionately high. In its consultation note of 2018, MoRTH had mentioned that although CVs (such as trucks and buses, taxies and three-wheelers) constitute only about 5 percent of the total fleet, they contribute nearly 65-70 percent of the vehicular pollution. Of these, the older commercial vehicles, typically manufactured before the year 2000, account for 15 percent of the total vehicular pollution as these pollute 10-25 times more than a modern vehicle.
Another 2013 study from the International Council on Clean Transportation (ICCT) estimates that in 2011, pre-2003 vehicles were about 23 percent of the fleet but were responsible for about half of the particulate emissions from vehicles.
IIT Bombay’s multi-city study in 2014 estimated that pre-2005 vehicles were responsible for 70 percent of total pollution load from vehicles. In fact, old heavy-duty vehicles have higher impact in smaller cities and towns and contribution of old diesel cars and two-wheelers can vary between 8-23 percent across cities. Fleet renewal of heavy-duty vehicles based on BS VI emissions standards can give significant benefits. For example, an old BS-I heavy-duty diesel vehicle is designed to emit 35 times higher particulate matter compared to a BS VI vehicle. As cities begin to take stronger action on old and junk vehicles, these will begin to crowd in other areas and transfer pollution.
From an industry perspective and to drive growth in the critical CV segment, which is still badly impacted, it is important to prioritise the scrappage of old heavy-duty vehicles and replace them with BS VI vehicles. According to CSE, if a stimulus package is extended to personal vehicles (two-wheelers and cars), then the public incentive programme along with voluntary incentives from the industry should be linked with electric vehicles. This is needed as an accelerator to stay on course to meet the target of 30-40 percent electrification of the fleet by 2030.
The Delhi government, in its Electric Vehicle Policy, has already linked scrappage incentives with electric vehicles for 25 percent electrification by 2024. A similar linkage is needed at the national level. Also, for national-level implementation, additional criteria for identifying grossly polluting and unfit vehicles based on fitness and roadworthiness, damaged vehicles, emissions performance, are needed to guide the nation-wide programme. Age caps can work in pollution hotspots.
What about vintage and classic cars?
Whilst a scrappage policy may bring down pollution, there must be an exception of Vintage and Classic cars as well as a provision made for Modern Classics, which are an important part of not just automotive history but also history of humanity.
Also, most of these cars are used extremely sparingly and are extremely well maintained and they aren't used daily, so there is no question of them causing any pollution. The total number of cars that are collectible are only a few thousand so a blanket scrappage rule would be unfair
Some relatively mainstream cars besides old Ferraris, Mercedes and Porsches that are over 15-year-old cars like the BMW 330i and the Mazda MX-5 are actually increasing in value internationally. Therefore, to scrap them would be a loss of national wealth.
All in all, a vehicle scrappage policy is good news for India Auto Inc and the country. While industry awaits clarity on the policy, it will be important that there is speedy action on developing scrappage facilities across the country.
Also read: Autocar Professional’s February 1 issue is all about electric mobility
Budget hits the right notes for auto industry
2021 Budget: What's in store for the auto industry
India Auto Inc responds to Budget 2021