India all set to bring in vehicle scrappage policy: What it means

The long-delayed and much-awaited vehicle scrappage policy may receive an impetus in the times to come with Road Transport and Highways Minister Nitin Gadkari informing on Thursday that it will be of immense benefit to the domestic automobile sector which is currently reeling from the effects of a national lockdown to check spread of Covid-19 disease.

The vehicle scrappage policy currently awaits a clearance from the Finance Ministry and Gadkari, in a video conference with Society of Indian Automobile Manufacturers (SIAM), said he is confident that all creases would be ironed out in a speedy manner. "I have been trying to pursue the scrapping policy for the last two years. We need cooperation from other ministries, stakeholders. Have told the secretary to follow it up as soon as possible. This is one of the steps to boost the industry," he said.

But what is the vehicle scrappage policy that is being touted as a massive step towards helping the Indian automobile sector?

Parts of a vehicle being scrapped can be recycled at manufacturing facilities for new cars.

In the simplest of terms, the vehicle scrappage policy takes aim at old polluting vehicles on Indian roads and looks at confining them to the scrapyard. With resale value of vehicles beyond 15 years being extremely low, these vehicles can be sent to scrapyards with some sort of monetary compensation to owners which could ensure two benefits - incentive for owners to get rid of such vehicles and putting these polluting vehicles out to help the environment. There could, however, be other equally important benefits like such owners then going to the market for new vehicles which could boost demand, and re-using the scrap materials like steel and aluminum for manufacturing new vehicles.

End of Life Vehicles are taken to scrapyards where machines like shredders are used to reduce them to small parts, some of which are then recycled. The challenge may be to define the set process and to get rid of parts which cannot be used once again in an environment-friendly manner. And while there are also questions pertaining to the compensation amount to be given to owners bringing in their old vehicles - how much, who will give and what criteria to be followed, the obvious and multi-faceted benefits of the policy itself is backed by most.

Vehicle scrappage policy in India may also allow scrap cars from abroad.

Cash for Clunkers

Experiments with cash for clunkers in the US has produced a mixed bag of results. (This image was tweeted by @climateguyw

Other countries have previously undertaken measures similar to the vehicle scrappage policy. In the US, it was officially called Car Allowance Rebate System but popularly referred to as 'Cash for Clunkers.' It was implemented in the aftermath of the 2008-2009 financial slump with people being given around $4,500 for their old vehicles provided they buy a more fuel efficient vehicle in its place. Fox News has reported that around 700,000 vehicles were brought to scrapyards under this program.

Did it help the auto industry?

The jury is still out on whether the Cash for Clunkers program actually helped the American car industry. Some studies in the US have shown that while the compensation for old vehicles added a burden of $3 billion on the US taxpayer, people getting compensated often went for cars which were smaller and/or less expensive. A Texas A&M University study, for instance, found that people who opted for Cash for Clunkers bought cars which were $4,600 chaper on an average than cars they may have bought otherwise. Others, however, argue that the same people would not have made new purchases at all if it was not for the Cash for Clunkers program.

Several European countries too have tried experimenting with similar programs and are deliberating upon it in current times of uncertainty as well. The German auto industry has been at the forefront in the demand for such a program but Bloomberg reported earlier this week that the country has put off any such program till early June.