Explained: National Automobile Scrappage Policy and what it means for vehicle owners in India

In the making since 2015, India’s National Automobile Scrappage Policy was formally announced today, 13 August, 2021. At the Investor Summit in Gandhinagar, Gujarat, the national vehicle scrappage policy was announced by India’s Prime Minister Narendra Modi, in the presence of Nitin Gadkari, Minister of Road Transport and Highways, and Gujarat Chief Minister Vijay Rupani. During the presentation, Gadkari mentioned the vehicle scrappage policy is a step necessitated by India’s commitment to the Paris Agreement; one that is also aimed at providing a much-needed boost to the country’s automotive and manufacturing sectors.

Why is a vehicle scrappage policy needed?

The promotion of clean mobility necessitates a reduction in the country’s fuel import bills, and a reduction in emissions is a pressing need at this time. Gadkari mentioned how more than one crore vehicles on India’s roads contribute greatly to rising pollution levels, as well as their tendency to be less fuel-efficient towards the end of their life. Moreover, he pointed out such vehicles are also inherently unsafe and can be a threat to their occupants as well as other road users.

Vehicle scrapping will help phase out unfit & polluting vehicles in an environment friendly manner. Our aim is to create a viable #circulareconomy & bring value for all stakeholders while being environmentally responsible.

— Narendra Modi (@narendramodi) August 13, 2021

What does the vehicle scrappage policy propose?

Under its Voluntary Vehicle-Fleet Modernisation programme (VVMP), the government plans to set up between 450-500 automated vehicle fitness testing stations across India on a public-private partnership (PPP) basis involving private firms and state governments. A total of 60-70 vehicle scrapping centres will also be built, with Gadkari mentioning they will be situated no further than 150-200 kilometres away from any location in India. A total of seven agencies – including Tata Motors – have signed a Memorandum of Understanding (MoU) with the government today for this project. Tata Motors' vehicle scrapping centre will be set up in Gujarat, will scrap both passenger and commercial vehicles and will have the capacity to recycle up to 36,000 vehicles a year.

The scrappage policy leaves the choice of scrapping to the owner of the vehicle, with Gadkari saying the automated tests will place emphasis on vehicle fitness, and not its age. Private vehicles – which are over 20 years old – will have to undergo fitness tests, at an estimated cost of Rs 300-400 per test. Vehicles that pass the automated tests will be subjected to a ‘green tax’, which will see owners shell out an additional 10 percent to 25 percent of road tax at the time of the renewal of the vehicle’s fitness certificate, along with re-registration fees. However, those who choose to drive a vehicle that has failed the automated test will face substantial penalties, and such vehicles could also be impounded.

When will the vehicle scrappage policy come into effect?

The implementation of the vehicle scrappage policy in India is still some time away. Initially, it will be heavy commercial vehicles that will need to undergo fitness tests starting 1 April, 2023, while fitness tests will be made mandatory for all other types of vehicles from 1 June, 2024, in a phased manner.

What are the benefits for a vehicle owner to scrap their vehicle?

Once the vehicle has been scrapped, the owner will receive anywhere between four to six percent of their old vehicle’s ex-showroom price, and a scrappage certificate, which will make the individual eligible for a road tax rebate of 25 percent, a registration fee waiver and a discount of five percent of a new vehicle’s ex-showroom cost, offered by the vehicle manufacturer. This will essentially make a new vehicle cheaper for someone who has scrapped their old vehicle, with potential discounts in the range of Rs 30,000 (for a car costing Rs 6 lakh) to Rs 50,000 (for a car costing Rs 10 lakh).

Over a period of time, the government estimates scrapping an old vehicle and replacing it with a new one will bring substantial monetary benefits for motorists, in addition to reducing emissions and enhancing fuel efficiency. Road Transport & Highways Secretary Giridhar Aramane said initial estimates suggest an owner of an old compact sedan may enjoy benefits of up to Rs 1.15 lakh over a three-year period by scrapping their vehicle and buying a new one, including direct concessions as well as savings from lower fuel and maintenance costs.

What are the other positives of the vehicle scrappage policy?

The National Automobile Scrappage Policy will attract investment of over Rs 10,000 crore, and generate 50,000 jobs in the country. Gadkari explained the proper recycling of raw materials obtained from the scrapping will help reduce import of materials such as aluminium, copper, steel and more. With the potential to recycle up to 99 percent of materials used in a vehicle, raw material costs are estimated to drop by as much as 40 percent. This will make components cheaper for vehicle manufacturers, and will also lead to increased GST revenues of Rs 30,000-40,000 crore for both state and central governments.

Additionally, there’s also a possibility to derive materials needed for local production of lithium-ion batteries (to be used in electric vehicles) from scrapping older vehicles, which could help drive the growth of the EV business.