Automotive sector

Here’s How the Vehicle Scrappage Policy Can Help India’s Economy and Automotive Sector

Prime Minister Narendra Modi today launched India’s long-awaited vehicle scrappage policy. Prime Minister Modi launched the policy at the Gujarat Investor Summit and asked young people and start-ups to join this scheme. Scrapping vehicles will help phase out unclean and polluting vehicles in an environmentally friendly manner, he said. Prime Minister Modi also mentioned that the government aims to create a viable circular economy and bring value to all stakeholders while being environmentally friendly.

The government plans to create jobs for around 35,000 people in fitness centers and scrapyards and a collective investment of Rs 10,000 crore. The cost of the vehicle suitability test will depend on the type of vehicle. For a personal vehicle, it will cost Rs 300-400, while for a utility vehicle, it could be Rs 1,000-1,500.

On the other hand, the vehicle scrapping policy is expected to give a major boost to the metal recycling business, Grant Thornton Bharat said. The report also states that the policy is likely to affect major changes in the Indian automotive industry.

Arindam Guha, Partner and Leader, Government and Public Services, Deloitte India has listed some pointers highlighting how the vehicle scrappage policy can boost the Indian economy as a whole, not just the country’s automotive sector.

Reduced pollution

Just like in Western countries, the scrappage policy comes into effect when a vehicle registration is complete. In general, a passenger vehicle has a lifespan of 15 years and a commercial vehicle has a lifespan of 10 years, after which they become obsolete and also start polluting the environment at a greater intensity than they do. would have done before. Removing these polluting vehicles from the road will help India reduce its carbon footprint, which will save billions of dollars invested in such initiatives to reduce emissions.

Circular economy

India’s vehicle scrapping policy represents one of the recent additions to the list of circular economy initiatives adopted by the country. It aims to facilitate the recovery of key materials used in vehicles in the form of steel, aluminum, plastic, etc. relying on a scientific disposal process that can then be reused in different industries, including automotive manufacturing. Once there are a sufficient number of registered vehicle scrapping facilities across the country, it will likely reduce the costs of these key inputs.

Sale of new vehicles

The vehicle scrapping policy should not only reduce environmental pollution and improve road safety by removing end-of-life and unfit vehicles from circulation, but also encourage the sale of new vehicles through incentives financial aid in the form of vehicle registration fees and reduced road taxes, giving a boost to the automotive industry.

Job creation

Apart from reducing car pollution and improving road safety, the vehicle scrapping policy is also likely to attract additional investment and create jobs through Registered Scrapping Centers (RVSF ), with about 50 to 60 such centers likely to be set up across the country. The policy also provides an opportunity for small and medium enterprises to set up vehicle test centers to assess the condition of old vehicles and issue certificates of fitness. These test centres, which are being considered for establishment at district level, should be equipped to carry out emission, brake/safety and other tests in accordance with the Central Motor Vehicle Rules, 1989.

Stimulate the state economy

While the vehicle scrappage policy is certainly a step in the right direction, its actual implementation would very much depend on states formulating supportive policies in areas such as (a) financial incentives for vehicles replacement in terms of exemption from registration fees, reduced road taxes as well as disincentives for end-of-life vehicles in the form of higher registration renewal fees and road taxes; (b) facilitate the development of industrial infrastructure and ecosystem for the establishment of registered vehicle scrapping facilities as well as vehicle testing facilities. States that are early to adapt are likely to capture a higher share of investment and economic benefits.

Boost for Gujarat

Gujarat is well positioned to reap the benefits of the vehicle scrapping policy due to a number of inherent advantages. These include (a) the existing industrial infrastructure and ecosystem for shipbreaking at Alang with the required pollution management, effluent treatment systems which have the potential to reduce additional investment in demolition; (b) access to the western seaboard which could allow vehicles imported from other countries to be targeted for scrapping, thus providing economies of scale for an integrated scrapping facility; (c) a vibrant automotive industry that not only provides a market for materials recovered from scientific disposal facilities, but could also represent a potential investor base for vehicle disposal facilities.

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