Scrappage Policy: A Change in Automobile Sector

With the motive of increasing the sale of new vehicles, the Ministry of Road and Transport Highway (MoRTH) has come up with a policy named Vehicle Scrappage Policy.

What is Scrappage Policy?

Scrappage Policy is a government-funded program at was proposed in the view of replacing the old vehicles by modern one. The main motto behind the policy is to stimulate the automotive industry and to safeguard the environment by taking older vehicles off the road.

Is the Policy Essential?

The Indian automobile industry has been facing a massive fall in the sale of vehicles for the past two decades. The Scrappage Policy initiated by the government will replace vehicles that are older than 15 years by the new one with better emission technology. It is predicted that this policy would boost up the demand for new vehicles and would help the Indian automobile sector to overcome its prolonged negative growth.

Why the Vehicle Sale Slumped?

The major factors which affected the sale of automobiles in India are

•    High GST Rate on Automobiles
•    Unemployment
•    Stagnant Wages

According to the data released by SIAM ( Society of Indian Automobile Manufacturers), the sale of commercial vehicles and two-wheelers dropped nearly 39% and 22.24% respectively.

Working Model:

According to the Vehicle Scrappage Policy, many scrappage centers will be formed across the country. The old vehicles will be put in the scrappage center for dismantling and only the valuable scrap metal parts will be taken for the process of recycling. The value for the scrapped vehicles will be provided in the form incentive and that can be used in purchasing new vehicles by paying additional amounts. The scrap metals that are obtained will be redesigned into a product in an organized and safer method.

Incentive for Old Vehicles:

The Government will provide the incentive for the old car owner in the form of

•    Tax reduction for new automobiles.
•    Offering discounts to buyers who scrap vehicles.
•    Providing easier financing to buy new vehicles.

Standards for Scrappage Center Set-Up:

The policy states that any organization that is involved in setting up the Scrappage center must possess atleast the minimal technical requirements for collecting and dismantling. They must also get the certificates including Environment, Quality management, and occupational health and safety certificate within six months of starting the process.

Scrappage Policies in Other Countries:

In the year 2008, the countries including the US, Germany, China, etc had introduced this scrapping policy to boost the sale in their automotive sector.  The US named this policy as” Cash of Clunkers” which was signed by former President Obama in July 2009. This program provided financial incentives to the car owner on scrapping their old car to buy more fuel-efficient cars. But the program ended very shortly in November 2009 as it was not cost effective to the car owners.

Will it be Successful in India?

The success of this policy solely depends on how fast the scrappage centers are established throughout the nation. And, it also depends on how well the mechanism of collecting the metal scrap, recycling and reusing would take place in a controlled manner. The Scrappage policy will benefit the people only if a proper incentive is provided for their vehicles as the old car owner will not be able to buy a new car right now. It is also indeterminate whether the demand for the new vehicles will last only for a short term. The Scrappage policy has been framed up and it will be circulated among the stakeholders or general public for comments by 15.11.2019.