Union Finance minister Nirmala Sitaraman announced a new vehicle scrapping policy in the 2021 budget, which is expected to impact the automobile sector in a big way and could have a negative impact on small and medium entrepreneurs associated with it.
While the government is pushing it as a move to revitalize the automobile manufacturing sector, the small-scale entrepreneurs and/or vehicle owners say that it could lead to unemployment of unskilled labour working in the sector. The small entrepreneurs are also concerned with the timing of the new policy, given the economic slowdown triggered by Covid19-induced lockdowns.
Another common concern among the stakeholders was that while the old vehicles were sturdy and lasted longer, the new vehicles have a short shelf life and need to be disposed of sooner.
When should you scrap your vehicle?
While the details of the new policy have not yet been announced, a draft notification circulated in 2019 had a broad outline.
Besides advocating for voluntary scrapping of 15-year-old commercial vehicles and 20-year-old personal vehicles, the new policy increases the frequency fitness checks to twice a year (currently it is every two years for commercial heavy vehicles. It even includes a ‘green tax’ on older vehicles.
Further, the policy suggests setting up of many authorised vehicle scrapping centres across the country to facilitate the process. The draft suggests voluntary scrapping of vehicles that are obsolete and/or beyond economic repair and/or those that had been damaged in fire, riots or accidents or natural disasters.
The Vehicle Scrappage Scheme, which is aggressively pushed by the Union Minister for Road Transport and Highways, Nitin Gadkari could result in unemployment of unskilled labour. “This policy has come at a wrong time, when the lockdown has hit the small truckers really bad,” says Bal Mankit Singh, chairman of the core committee of All India Motor Transport Congress, an umbrella body representing the interests of about 90 lakh commercial truckers nationwide. “It will harm the small truckers, who are small entrepreneurs and will generate unemployment in a big way since each truck supports at least four families,” he adds.
Each commercial truck costs around Rs 40 lakh, says SIngh, and it takes around six years to clear vehicle loans. After which, they are used for upto ten years.
Increase in school bus fees?
The proposed scrapping policy is also likely to increase school bus fees. Ramesh Manian, committee member of the School Bus Owners Association says that most school buses enjoy a longer life. “Since school buses ply short distances for only about 180 days/ year, no age limit should be fixed on them for scrapping. Though they could be subjected to stringent fitness regulations every year. Since most buses are already Euro- 6 approved, they are least polluting as per the government’s own version. So, setting an age-limit on the grounds of pollution for school buses is unwarranted,” he says.
Manian objects to ‘copy pasting policies’ from other countries without taking the local market factors into consideration. ”A country like India with such a low per capita income cannot afford to insist on implementing such stringent policies,” he says.
Questioning the government’s proposition that the policy would increase employment in the manufacturing sector, Manian says that there is less scope for jobs in that sector since “space is limited and technology is advanced.”
Heritage and second-hand vehicles
The new policy is expected to affect heritage vehicles in a big way. Darshan Mehta, an entrepreneur, who owns a E-Class 2001-model Mercedes says that his car has been well maintained and comfortably clears the fitness and pollution norms. “If my car clearly abides all the fitness norms laid by the authorities, then how fair is it to recommend it for scrapping merely on the basis of the number of years it has outlived. What is the way out for those who wish to retain vehicles for their heritage value? Though my car is old, it has been lucky for me and I intend to retain it for its sentimental value,” he says. Mehta also wonders about the fate of his 53-year-old bullet bike of 1967.
The proposed policy could drastically bring down the valuations of vehicles in the second-hand sale market. Gurmeet Singh Chandok, proprietor of 1313 Motorworks, which deals with services and solutions for cars, says the proposed policy could devalue old cars almost completely. “Maintaining an old vehicle is quite costly as spare parts are not easily available. Vehicles over 15-year-old fail to get comprehensive vehicle insurance since the falling valuation makes claims irrelevant. Such old vehicles make do with basic vehicle insurance that are mandatory to ply on the roads. The second hand vehicle market is already hit with so many new models flooding the market and there is very less demand for them,” says Chandok.
Usher in EVs
Another concern cited by the government is to restrict the pollution caused by vehicles and subsequently to encourage electric vehicles. Most suggest that if a vehicle manages to stay within the pollution norms suggested by the government they should be allowed usage.