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Vehicle scrapping policy in India – Guarded Optimism!

Amrendra Kumar, Vice President at Resustainability, one of Asia’s leading providers of comprehensive environment management services, provides Auto Recycling World with his opinion on the India vehicle scrapping policy, and what if any, opportunities there are for stakeholders in the vehicle recycling industry.


Vehicle scrapping policy in India - Guarded Optimism! p
Amrendra Kumar

The vehicle scrappage policy in India was one of the most awaited policy launches of the previous decade. It was often touted as a panacea for the slowing automobile sector during the 2017~2019 period, rising scrap demand for steel production during the post-COVID boom in the steel sector and recently as an enabler for achieving climate goals.

The formulation of the policy went on for more than 3 years, and multiple iterations of stakeholder discussions were carried out to formulate a pragmatic approach to curb vehicular pollution and achieve the objective of organised recycling of end-of-life vehicles.

When the policy was unveiled during the Gujarat Investor Summit 2021, there was a mixed response from all corners. While it was a formidable start to organise vehicle recycling in India, a relaxed timeline for the implementation and clarity on an incentivisation framework were considered as a gaping hole in the policy.

The policy did lay out a clear timeline for a phased implementation of the regulations starting with government vehicles from April 2022, followed by medium and heavy commercial vehicles from April 2023 and finally, passenger vehicles from June 2024.

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The blueprint announced multiple incentive schemes for the vehicle owners to give back the old polluting vehicles by enabling them to claim upfront discounts, waiver of registration fees and GST rebates on the purchase of new vehicles. And the “Certificate of Dismantling” issued to owners getting their vehicle scrapped at a registered vehicle scrapping facility (RVSF) was to be used as the bonafide document to identify the beneficiary for the various incentive schemes mentioned earlier.

In collaboration with MSTC, Mahindra was the first to venture into the space by setting up India’s first vehicle scrapping facility in Greater Noida. It was truly a world-class facility for a country where vehicle scrapping was completely informal back then. However, the facility really struggled to get the requisite feedstock of old cars and achieve the planned utilisation. Many interested corporate players who were closely watching the Greater Noida facility ramp-up, did not get the requisite confidence and held back on their investment. Once the policy announcement became a near-reality, players like Tata Motors, Maruti-Toyota, Re Sustainability, CMR Katariya etc, announced their plans to set up RVSFs across India. Mahindra CERO, by then, had also expanded to six other cities. While this article is being written, nine RVSFs are operational in the country, and an additional six more are under construction. While the government expected hundreds of RVSF to mushroom across the country, that hasn’t really translated into reality.

While the players are excited about the size of the opportunity, there is a “guarded optimism” on how much of an opportunity would translate into business value. The slow traction of the first facility has made it abundantly clear that without policy support, such projects are not viable. Further, the onus lies on state government to execute the policy, along with providing the fiscal support for incentives announced.

Given the diverse financial health of various states and their own set of priorities, private players are cautious about entering states that are yet to announce the state-specific scrappage policy. Further, the policy is silent on the reuse and refurbishment of usable parts from an end-of-life vehicle. This is a major lever for recyclers as global business models have shown that spare parts significantly to the commercial viability of such projects. Lack of clarity on spares will continue to be a major investment deterrent.

Another key aspect which most players are watching out for is the public sentiment when the policy deadline is around for passenger vehicles. Cars have a sentimental value in India, and a lot of owners may find the policy intrusive into their personal preferences. Finally, there are a lot of enablers to make the policy effective, like the set up of testing centres, digitisation of the de-registration process and the creation of a national movement for public participation.

Recent policy successes, like GST, have raised the hopes of effective deployment and proactive participation by state governments. Further, urban clusters like Delhi NCR, Mumbai-Pune region, Bangalore, Hyderabad, Chennai, Kolkata etc, present an attractive opportunity owing to higher dispensable income levels, higher legal enforcement abilities and greater awareness levels. This business is expected to follow the smartphone revolution. First, it will be concentrated in metros, and upon market saturation, evolved business models will lead this business to Tier 1 towns and below.

The next three to four years will be crucial, and interested players should watch out for policy amendments like the right to repair, fiscal provisions by state government and OEM’s support of the policy.

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