Scrap and grow

Scrapping policy should consider ownership trend

After a year of negotiation, India may soon announce a policy on scrapping vehicles. At a time when demand for cars and commercial vehicles is poor, even in the two years preceding the pandemic, a scrapping policy is a sensible way to kill many birds with one stone. Apart from boosting demand, the proposal to allow vehicles older than 15 years to be scrapped could help improve auto emission standards, reduce steel imports (since metal from scrapped vehicles can be recycled), and expand employment in the large scrapyards that need to come up to service this new market. The broad contours of the policy were announced last year but the details are yet to be worked out. The Indian scheme may differ from similar global schemes in two respects. First, it does not appear to be time-bound, unlike, say, the famed “cash-for-clunkers” scheme in the US, which ran for two months, or China, which ran it for a year. Second, the Indian scrapping policy is unlikely to involve a budgetary outgo in the form of a subsidy. The meetings between Union Minister of Roads and Highways Nitin Gadkari and senior officials of the Society of Indian Automobile Manufacturers involve discussions over the amount of rebate auto companies can offer buyers who scrap old vehicles for new ones — reports suggest 1-3 per cent. A tax break is also being discussed, though this may be a more complicated exercise since it will involve a decision by the Goods and Services Tax Council, in which states have a say.

Several issues need to be considered before the final policy is announced. The first is the 15-year time limit for cars. This time limit already has an implicit enforcement in that registration ceases after 15 years. This leaves the owner with the option of either applying for re-registration or selling the vehicle for scrap. Under the proposed scrapping policy, re-registration will be allowed for five years but the fees are steep — for a car, the re-registration certificate could cost Rs 15,000-20,000 from the current fee of Rs 600. This is clearly a deterrent pricing policy designed to encourage owners to buy new vehicles. But this approach may need a rethink. First, for most Indians, a car is considered a long-term asset rather than a utility product. Indian owners tend to use their cars sparingly (only Delhi is an exception to this rule) and maintain it with care. This means that a 15-year-old privately owned car (as distinct from a taxi) may be good to run for far longer. This longevity in personal vehicles is likely to persist in the post-Covid-19 era, as corporations discover the virtues and cost savings of work from home. Given the nature of ownership, it may make sense for the scrapping policy to mandate re-registration for privately owned cars after 20 years rather than 15. Second, it is worth considering whether luxury cars should be eligible for rebates on scrapping. High taxes have ensured that luxury cars are a minuscule segment of the market and scrapping them is unlikely to galvanise production lines. Finally, a differential policy is surely in order for cars running on green energy. Either way, given its potential to stimulate a revival, the final scrapping policy is long overdue and should be announced sooner rather than later.