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It could generate fresh employment and trigger economic growth, and also act as a critical factor to revive the automobile market that has been hit by a prolonged slowdown, they said.
Roads and Transport minister Nitin Gadkari said this month that the policy would soon be put before the Cabinet for approval. The government expects recycling of metals like steel, copper and aluminium from the scrapped vehicles to help reduce their imports. Getting the roads rid of old vehicles would also help lower pollution and the government’s oil bill, as the new vehicles replacing the old ones would be more fuel efficient.
The automobile industry wants the policy to cover all segments, including cars and two-wheelers and not just commercial vehicles, to create a significant scale for new players to participate in this new market.
Three critical things the government needs to do to promote scrappage are: offer sizeable financial incentives, develop a resale market for the scrappage certificate for those who don’t want to replace their scrapped vehicles with new, and fix the life period for a commercial vehicle at 10 years, said Satyakam Arya, the managing director of Daimler India Commercial Vehicles.
An HDFC Bank study has estimated the market for vehicle scrappage and recycling at $6 billion. According to it, if the policy is defined well, 9 million vehicles could go off roads by fiscal 2021 and 28 million by 2025, largely comprising two-wheelers. It would reduce carbon dioxide emission by 17% and cut particulate matter in air by 24%. Also, if half the Bharat Stage-II and III vehicles go off the roads, it would save 8 million tonnes of oil a year. “A comprehensive scrappage policy will result in reduction in costs, save foreign exchange and increase revenues in the long term,” said Ashok Khanna, the group head for auto finance at HDFC Bank.
Already the likes of Maruti Suzuki and Mahindra & Mahindra have ventured into the recycling business and there are another half a dozen companies in queue to enter the space, say people in the know. The challenge is that scrap yards will take time to build.
Industry experts say vehicles should be scrapped based on their usage and not just the life of the vehicles.
According to HDFC Bank, a personal car may be scrapped after 15 years and a two-wheeler after 10 years. In case of commercial vehicles, it suggests the end of life at 7-8 years, or certain kilometres driven.
Under the draft scheme, the government has stated that a part of the scrap value from the old vehicle may be given as a payback. Also, incentives in the form of lower tax could be offered if a person is buying a new vehicle in place of the scrapped one. The government is hoping that higher pollution checks, re-registration charges and fines may also deter usage of old vehicles.
Ashish Kale, president of the Federation of Automobile Dealers Associations of India (FADA), said since it would be a voluntary policy, there should be financial incentives equal to at least 10% of the new vehicle to the owner to make the scheme successful. “The focus should be more on financial incentivises rather than disincentives,” he said.
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