Vehicle Scrappage policy was long overdue and will be a game changer – BUT its success will hinge on how swiftly the buyers, industry see incentives on ground

Motor scrapping policy in India - Modi Goverment


The Vehicle Scrappage Policy is offering many incentives to buyers in the form of tax and registration exemptions while aiming to bring down cost of vehicles. While, environment is a consideration, cost advantage for average owner will be a major play.

India’s much awaited vehicle scrappage policy was launched last month with an aim to phase out old and unfit vehicles. One of the objectives of this policy is to ensure cleaner environment while not putting too much burden on the people.While, this was long overdue and is being lauded as a game changer, its implementation will be a major challenge. The buyers and industry must see the benefits for them translate on ground swiftly, rather than remain in theory as they are the biggest stakeholders in its success.

Under this policy, personal vehicles that are older than 20 years will be de-registered from 1 June 2024 if they fail the automated fitness test or their registration certificates have not been renewed. Meanwhile, heavy commercial vehicles older than 15 years will be de-registered from April 1, 2023.

Age will not be a lone criteria to scrap the vehicle under this policy. The decision of whether to scrap a vehicle or issue fitness certificate will rest on rigrous testing. The mandatory fitness test of the vehicle will be done to determine if the vehicle is fit to run on the roads and what is its impact on the environment. Under the new policy, a fitness certificate to a vehicle must be given only after rigrous testing of its engine, brakes and based on other performance metrics.

If a vehicle passes the fitness test then the test must be repeated after every 5 years to keep an account of the current status.

Under the existing laws, a registration certificate for a passenger vehicle is valid for 15 years from date of issue while the validity is for 10 years for commercial vehicles. The rules of scrappage policy will be applied to the vehicles after the registration period is expired. The new rules require a mandatory fitness test.

The extant rules under the Indian Motor Vehicle Act allow fitness test of commercial vehicles once in two years up to eight years from the date of registration. After completion of 8 years, the vehicle owner must renew the fitness certificate after every year.

The Government has been arguing for the policy, emhasisingthat this national policy will be environment friendly and help India in achieving its stated Sustainable Development Goals (SDGs). This is not the only step but one of the steps to mitigate climate changes. The policy has been designed to create a circular economy by utilising wastage.

Under this policy old and unfit vehicles which are accounting for higher vehicular emissions will be scrapped out in a phased-wise manner.

The government and the industry must create an infrastructure for efficient and automated testing of vehicles, scrappage yards

Creating Infrastructure

Infrastructure will be built for automated testing under this policy. This will be one of the essential determinants for the success of this policy – building world-class nationwide infrastructure for efficient, quick and transparent testing mechanism without manual interventions.

The Indian Government has mandated setting up of automated testing stations to minimise manual testing of vehicles as per the road map. At least 75 stations have been proposed to be set up in the first phase which will be increased up to 450-500 stations across the country, going forward.

One way to do this and which is suggested by the Centre is to set-up such stations under the Public Private Partnership (PPP) with the state government.  

The Government also intends to set up scores of registered vehicle scrapping facilities over the next 2-3 years.

The scope of term ‘unfit’ is wide in the policy and refers to vehicles which fail to qualify a fitness test; have been damaged due to fire, riot, natural disaster, accident or any other calamity; declared obsolete or beyond repair; vehicles which have outlived their utility.

If a vehicle is declared unfit, the owner will not be able to ply it on the roads. The transport authorities will not renew the registration of the vehicle. Though the policy has kept provisions of one re-test on recommendations of an appellate authority if the owner gets his vehicle repaired for re-inspection. The vehicle will be declared an end of life vehicle (ELV) if it fails a retest, too.

Since it is a voluntary scheme, owners of such vehicles will have the option of scrapping their vehicles by taking the vehicle to a registered vehicle scrapping facility.

Incentives for buyers

The Government has announced several incentives for people to do away with their old, unfit vehicles. The owners of such vehicles will get a scrap value which will be equivalent to 4 per cent to 6 per cent of the ex-showroom price of the new vehicle. The registration fees for new vehicle purchased will likely be exempted on production of certificate of deposit.

Moreover, the state governments have been asked to offer concessions on motor vehicle tax which could go up to 25 per cent for non-transport vehicles and up to 15 per cent for transport vehicles.

The Government has also asked the automobile manufacturers to give additional 5 per cent discount on purchase of new vehicle against certificate of deposit.

The policy also disincetivises running old and unfit vehicles on the roads. The renewal cost of registration could go as high as 62 times for commercial vehicles and by 8 times for private vehicles. Apart from this, states will impose green tax over and above the road tax that every vehicle owner will need to pay.

While, the expenses on maintenance of old vehicles will go, the owners will still require to do maintenance of their vehicles from time-to-time. It is difficult to tell now if the maintenance cost will come down as the technology is only improving leading to higher cost of maintenance and upkeep.

The fuel efficiency is expected to go up significantly but will there be a cost advantage amid rising fuel prices? We have seen prices only going up irrespective of the trajectory of the crude oil prices. In India, fuel is a cash cow for all governments.

However, an old and unfit vehicle will consume more fuel and pollute more, so there is some solace and definitely a cost advantage with newer vehicles.

How it benefits industry?

The move is expected to push vehicle sales. Indian automobile industry has been through difficult times with lower appetite for vehicle purchase for several years now. The problem goes back to the pre-covid years amid lower consumption, reducing incomes and high unemployment situation in the country.

Though, the pandemic has revitalised the sentiments with thrust now back on the need for personal mobility.

The scrappage policy is also expected to bring down the prices of vehicles significantly. The commodity prices have hit the roof, this year with most automobile manufacturers passing the price to the customers.  
Union Minister for Road Transport and Highways previously said that 99 per cent of the material can be recovered through recycling. This will significantly reduce the cost of raw material.

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