Retiring clunkers

India’s vehicle scrappage policy finally appears to be getting off the drawing board, with the Centre releasing a formal draft of rules. The rules may be notified based on stakeholder feedback. The new policy, while providing for compulsory scrapping of government and PSU-owned vehicles over 15 years old, offers leeway for private vehicle owners to decide on the timing of the scrappage. It specifies mandatory fitness testing after completing 20 years and 15 years for personal and transport vehicles respectively — from April 1 2023 for heavy commercial vehicles and June 1 2024 for others. Should a vehicle not appear for the fitness test or fail it, it would be compulsorily de-registered. But older vehicles that pass the test will see a hike in their certification fees. Along with this negative nudge though, the policy proposes positive incentives too for owners to take their clunkers off the roads — an upfront incentive of 4-6 per cent during scrappage and a 25 per cent rebate on road tax, waiver of registration charges and a 5 per cent price discount on the new purchase. To ensure that scrap-yards don’t spring up in a haphazard manner, separate rules have been framed to ensure that only Registered Vehicle Scrapping Facilities (RVSFs) approved by State governments with the requisite space, equipment and quality and pollution control checks, located in demarcated zones, are allowed to undertake this activity, with all of this subject to regular audit.

The latest version of the scrappage policy certainly seems to be better thought through than the earlier one. Detailed specifications for RVSFs are particularly welcome, to contain the adverse environmental fallouts of retiring vehicles on such a massive scale. Industry analysts estimate that the scheme could lift vehicle sales by 7-9 per cent, unleashing new jobs associated with the scrappage ecosystem. But for it to take off, a few loose ends may need ironing out. Upfront incentives are likely to be the key consideration for vehicle owners to retire their clunkers, but there’s not much clarity on how these will be funded. The Centre seems to be relying on the RVSFs to offer the 4-6 per cent scrappage incentive, on manufacturers to offer new vehicle discounts and on State governments to reduce road tax. But it needs to ensure they’re willing to take on this financial burden, or alternatively, provide a backstop. Given that most private vehicles in India are loan-funded, the availability and rates of finance may have a bearing on the success of the scrappage policy.

Overall, with this policy likely to take a few years to feed through to automobile demand, it is unlikely to provide any immediate economic stimulus. But it definitely has the potential to reduce vehicular emissions by taking polluting vehicles off the roads. It is on this aspect that the Centre must concentrate to ensure its success. As the policy hinges heavily on the RVSF ecosystem, State governments must take on the onus of monitoring its smooth rollout.