Five years in scrapage policy making

The Ministry of Road Transport and Highways will soon announce the details of the Voluntary Vehicle Fleet Modernization Program (VVMP), after which all stakeholders will be given another opportunity to submit their views within a period of 30 days. Its minister Nitin Gadkari last week shared the contours of the proposed VVMP. Much groundwork has already been done for the new VVMP framework and the first concept note was returned by the Ministry in March 2016. Before getting specifications, let us recall from a macro point of view that VVMP is one of the mechanisms by which India seeks to reduce its air pollution levels and climate change as part of its commitments to the Paris Agreement. Such scraping of end-of-life vehicles is well established in many other countries, including the European Union, the US, Canada, Australia, China, Korea and Japan.

Domestic data indicate two related trends. One, medium and heavy commercial vehicles — trucks and buses — account for only 2.5% of India’s domestic flights and 60% of air pollution. Second, older vehicles (over 15 years old) and generally before India III, represent only 15% of the total fleet but pollute 10-12 times more than new or fit vehicles. Both of these factors support VVMP. The Central Pollution Control Board (CPCB) estimates that the number of vehicles that will reach ELV status by 2025 is approximately 21.8 million, of which 80% are two-wheelers.

VVMP proposes to de-register commercial vehicles after 15 years if they fail to obtain a fitness certificate; For private vehicles it will be 20 years later. In both cases, an increase in fitness and registration fees from 15 years after initial registration is used. Importantly, the criteria for determining vehicle fitness are based on emission tests, braking and safety tests under the Central Motor Vehicles Regulations, 1989 and not only on vehicle age.

The abbreviated VVMP outline suggests four specific incentives for older vehicle owners to scrap old and unfit vehicles through registered scraping centers. First, the scrap value of the old vehicle to be paid for by the scraping center will be 4-6% of the ex-showroom price of the new vehicle. Second, after submitting the certificate of scraping as proof, the vehicle manufacturer will ask for a 5% discount on the purchase of a new vehicle. Third, the registration fee can be waived when purchasing a new vehicle. Fourth, state governments are encouraged to pay road tax rebates of up to 25% for personal vehicles and up to 15% for commercial vehicles. The rules of the fitness and scraping centers are due to be announced in October 2021 and will be given an appropriate phase-time; For the abolition of state-owned vehicles, it will be in April 2022; For heavy commercial vehicles by April 2023; And from April 2024 will introduce a mandatory fitness test for other categories.

Finding the sweet spot of these incentives is crucial for VVMP to be successful and should be benchmarked against the regular resale value in the second hand market. Sources suggest that the resale value of some other popular models may be between 8-15% in the second hand market. In such cases, the low incentives offered by VVMP’s scrap policy may not match and fail to attract target vehicle owners. On the other hand, the market value of old diesel vehicles has fallen and the scrap policy rates offered by taxi, bus and truck owners under VVMP in that segment can be identified as an attractive proposition.

From a public policy perspective, the need to reduce emissions is controversial and the government must take multifaceted and meaningful measures to protect citizens from the harmful health effects of air pollutants. In addition, the new vehicles will be more fuel efficient and will reduce India’s oil import bill. Similarly, steel scrap produced under the successful VVMP model will reduce India’s steel import requirements. VVMP also assesses the setting up of registered vehicle scraping facilities across India based on the public-private partnership model. The automotive industry is directly related to VVMP with the purchase of new vehicles; The government therefore hopes to offer industry attractive discounts to new customers who can submit a scraping certificate.

Importantly, such a vehicle scrapage approach is the first step in establishing a more mechanized mechanism based on the expanded manufacturer responsibility of vehicle manufacturers. This will eventually force a rethink in the industry from a circular economic perspective, which will be based on the principles of eliminating waste and pollution while putting components and materials into use. In fact, as CPCB has underlined, automakers will play a key role in this new example, as their decisions will directly affect the reusability and reusability of their products through the choice of materials and car design. Reducing air pollution and reducing climate change will not be achieved on an abstract level. This requires concrete yet feasible action plans.

Else Rayners is a partner in the Kini law firm MV Kini and leads its environmental law practice.

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