Automakers agree to offer discount of 1% if old vehicle scrapped

PMO bats for incentivising scrapping, not imposing it on owners of old vehicles

The automobile industry has agreed to a government proposal to give a discount of 1 per cent on purchasing new vehicles if, correspondingly, an old one is scrapped.

The government wants to incentivise scrapping old vehicles because of apprehensions of a backlash from the transporter lobby.

Union Minister of Road Transport and Highways Nitin Gadkari had a meeting with the automobile industry, represented by the Society of Indian Automobile Manufacturers (SIAM), earlier this week. In the meeting a 3 per cent discount on new vehicles was proposed. While the automobile manufacturers have come around to giving a 1 per cent discount on new vehicles, they do not want the policy to come into effect immediately during the festive season and at a time when margins are under pressure, said a person in the know.

India transitioned to BSVI emission norms for vehicles and fuel on April 1 but a policy on old vehicles that have reached the end of their life and are polluting is delayed.

A draft policy has been finalised and is awaiting clearance from the Prime Minister’s Office (PMO). Officials said the PMO wanted the government to incentivise scrapping old vehicles instead of imposing it on their owners.

“Industry players want the policy to be deferred since they aren’t sure if they would be able to absorb the discount in the event of any post-festival fall in demand,” said a person familiar with the development.

A spokesperson for SIAM refused to comment on the meeting.

Besides the discount, the government is looking to give exemption to new vehicles from road tax and registration fees if the owner discards an old one. State governments would, however, need to approve new rates.

“There is a huge number of people who own one truck and their livelihood will be affected. Punjab and Haryana, where the government is facing farmer agitation, are also the states where truck ownership is high. So, the government does not want another agitation,” said an official.

The government had earlier looked at a proposal for cutting goods and service tax but that would have meant a mechanism be put in place by the GST Council, which would have been difficult. The discount would be offered because discarding old vehicles would create demand for new ones.

The Central government had in November last year notified a scrap-recycling policy to promote circular economy in the steel sector and utilise the scrap of vehicles and white goods that were not usable.

Under the policy, the Ministry of Road Transport and Highways and the Department of Heavy Industry were to work towards “extended producer responsibility” by requiring vehicle manufacturers to incentivise scrapping unfit vehicles in exchange for price discounts for purchasing new vehicles.

The policy is likely to be applicable to vehicles that are 15 years old or more. According to an estimate, there would be around 21 million “end of life” vehicles by 2025.

The ministry has formulated an Automobile Fitness Certification Policy to prevent unfit and polluting vehicles from plying. This would facilitate establishing fitness centres in the private sector by providing a supporting policy framework.

Original equipment manufacturers and/or its dealers would facilitate collecting old vehicles/ELVs (end-of-life vehicles)/recyclable spare parts of old automobiles either through a take-back scheme, or setting up scrapping centres, or through tie-ups with such facilities.

Unfit vehicles, with the concurrence of the owners, would be considered feed material for steel-scrapping centres.

The policy requires vehicle manufacturers to use recycled material in vehicles and other products if they do not give rise to safety or environmental hazards), thereby creating a market for recycled products, and the percentage use of such recycled materials in vehicles should be periodically audited to ensure compliance.