Vehicle Scrappage Policy: Everything You Should Know

Posted on: Apr 12, 2021 | 3 mins | Written by: HDFC ERGO Team

Vehicle Scrappage Policy: Everything You Should Know

The government has always been concerned about vehicular pollution and driver safety, which is why they are constantly developing new ways to regulate and upgrade vehicles. The Vehicle Scrappage Policy is one recent step in this direction. The policy is being debated and will apply to all vehicles, including private, commercial and government owned vehicles. The scrappage policy is expected to bring a change to Indian automobile market.

What is the New Vehicle Scrappage Policy in India?

The Vehicle Scrappage Policy, launched on August 13, 2021, is a government-funded program to replace old worn-out vehicles with modern & new vehicles on Indian roads. The policy aims to reduce pollution, create job opportunities and boost demand for new vehicles. Several countries, including the US, Germany, Canada and China, have introduced vehicle scrappage policies to boost automotive industries and curtail vehicular pollution.

This policy also supports India’s ‘Green India’ mission, creating space for a cleaner fleet of vehicles. According to the new policy, commercial vehicles more than 15 years old and passenger vehicles more than 20 years old will have to be mandatorily scrapped if they do not pass the fitness and emission tests. However, the policy does not treat a vehicle as scrap just because of its age but considers other factors such as quality of brakes, engine performance and others.

What is the Objective of Vehicle Scrappage Policy 2021?

The objective of the Vehicle Scrappage Policy is to phase out old cars, reduce urban pollution levels and stimulate automotive sales, which continue to record a slowdown amid India’s post-COVID recovery phase. Additionally, the vehicle scrappage policy is also a part of a larger stimulus package majorly requested by original equipment manufacturers (OEMs) to stir their demand. Under the policy, the Government will set up automated testing stations and scrapping facilities in phases. Currently, 75 stations are proposed under Phase 1; this count will gradually scale to 450–500 stations across the country. The Government has also welcomed private players to invest in setting up such stations through a partnership with the state governments. The Government also plans to set up 50–70 facilities for scrapping vehicles in next 4 to 5 years.

Why was this scrappage policy needed?

Vehicle ownership has increased dramatically over the last few years. India is the world’s seventh largest automobile manufacturer, with the majority of its production consumed domestically. Especially for two-wheelers, India is among the world’s largest markets. While this has resulted innumerous economic benefits, it has also resulted in India becoming a highly polluted country, with automobiles contributing significantly to pollution.

Another problem has been the extremely high rate of road accidents and the extremely low safety features of the vehicles manufactured in India. Despite concerted efforts of the government, such as making two wheeler insurance mandatory, to safeguard owner-drivers, the number of fatalities remains poor. It is important to incentivize people to switch to newer vehicles that emit fewer emissions and are safer to drive. In such a scenario, a vehicle scrappage policy is being developed as a formal legal framework to encourage people to upgrade to newer vehicles.

How this policy impacts you as a two-wheeler owner?

1. Compulsory Fitness Test:

A fitness test will be expected of all bike owners whose ride is more than 20 years old. As long as the bike is registered for personal use, you are good to go. After the first 15 years, people who have registered their vehicles for commercial use will be subject to the fitness criteria.

2. Computerized Fitness Test:

Vehicle fitness tests, which are currently performed manually by an RTO authorized person, will now be computerized. The Public-Private Partnership Model will be used to establish the new fitness test facilities. Fitness tests will be conducted in fully automated mode, with no human intervention, resulting in extremely accurate test results.

3. Mandatory End of Life Vehicle Certificate:

The new fitness test will be computer-controlled. If your vehicle fails the fitness test, it will be issued a mandatory End of Life Vehicle certificate. A vehicle of this type must be scrapped at registered Vehicle Scrapping Facilities. This vehicle is no longer road-worthy, and even your third party bike insurance will not be available for it.

When Will the Vehicle Scrappage Policy Come into Effect?

In January 2021, the vehicle scrappage policy was approved for government vehicles. The vehicle that belongs to the central and state government and is more than 15 years old will be scrapped. As of now, the vehicle scrappage policy is effective from April 1, 2022 for government and PSU vehicles. However, if your private vehicle is 15 years old, it needs to undergo a fitness test by RTO.

What are the Benefits of Vehicle Scrappage Policy 2021?

The Vehicle Scrappage Policy extends many apparent benefits, besides pollution control and improved road safety. Union Minister Mr Nitin Gadkari has highlighted that raw materials derived from scrapped vehicles can be reused in new vehicles. It can help reduce the price of new vehicles and subsequently boost sales. Apart from this, the policy will likely result in the following projected gains:

• 30% boost for the Indian automobile industry, from the current Rs. 4.5 lakh crore turnover to Rs. 10 lakh crore over the coming years

• Export component of Rs. 1.45 lakh crore in the current turnover is likely to go up to Rs. 3 lakh crore.

• Decrease India’s massive Rs. 10 lakh crore crude import bill.

• Attract new investments of Rs. 10,000 crore and create as many as 35,000 jobs.

What is the Categorization of Vehicles for the Scrappage Policy?

1. Commercial Vehicles

Commercial vehicles are the ones used commercially for transport purposes. Such motor vehicles will undergo a fitness test after completing 20 years. If the automobile doesn't pass the test, it will be scrapped as per the vehicle scrappage policy 2021.

2. Private Vehicles

Private cars or bikes are vehicles that citizens own. Like commercial vehicles, private cars and two-wheelers will be scrapped after 15 years if they are declared unfit for the test.

3. Government Vehicles

As per the new automobile scrappage policy 2021, vehicles that are more than 15 years old and owned by the state and central government will be scrapped.

4. Vintage Vehicles

Vintage vehicles are usually older than most four-wheelers and two-wheelers; however very precious and close to many people's hearts. They are also driven less often; hence, these vehicles will have separate terms and conditions for scrappage.

What are the Incentives for Scrapping Old Vehicles?

• Some incentives for scrapping old vehicles and buying new ones are as follows:

• Two-wheeler or car Manufacturers can give up to a 5% discount for buying new vehicles.

• Zero registration fee for new vehicle purchases.

• Owners can receive scrap value equivalent to 4–6% of the ex-showroom price of new vehicles

• States can give up to 25% and 15% rebate on road tax for personal and commercial vehicles, respectively.

What are the Disincentives of Holding an Old Vehicle?

Owners who will keep personal vehicles which are 15 years old will have to bear the fee for conducting fitness tests and renewal of fitness certificates for motor vehicles. There will also be an increase in the fitness certification fee for more than 20 years old for transport vehicles. Lastly, there will be an increase in the renewal of registration fees for personal vehicles (non-transport vehicles) more than 15 years old.

What are the RTO Rules For Selling Bikes as Scrap in India?

If you are looking to sell your bike as scrap in India, here are the following RTO rules you should know:

1. The chassis number of the bike needs to be removed before the scrap is sent for recycling.

2. The bike owner should connect with an authorized scrap dealer. The dealers should ensure that the bike is scrapped in such a way that it does not impact the environment.

3. The bike owner should also get in touch with the RTO and inform them about the scrapping as well. One also has the option to deregister the bike.

4. The scrap dealer is going to perform a physical inspection and quote the price on the premise of the vehicle's weight. Once the agreement stage is reached, the scrap dealer will then remove the bike's parts.

5. Ensure that the scrap dealer scraps the vehicle. Take pictures of the same for assistance in the future.

Conclusion

The Vehicle Scrappage Policy is expected to be a great game changer for both bike owners and bike manufacturer. It will increase demand for new bikes while also ensuring that people drive safer or more fuel-efficient vehicles. This will also boost the demand for two-wheeler insurance because more new buyers will look into how they can benefit from buying bike insurance online.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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