*Vehicle scrappage policy in the pit lane: Where are the scrap yards? | Business Standard News

Clipped from: https://www.business-standard.com/article/economy-policy/vehicle-scrappage-policy-in-the-pit-lane-where-are-the-scrap-yards-122050100906_1.html

Analysis shows that four states/Union Territories account for 57 per cent of the older vehicles in the country

Vehicle scrappage policy

According to government records, there were 21.4 million cars older than 20 years on Indian roads till last year

August 13, 2021, the government announced a vehicle scrappage policy to scrap and replace on Indian roads commercial vehicles over 15 years old and passenger vehicles over 20 years. The policy, which kicks in this financial year, is a variation of the famous US “cash-for-clunkers” programme of 2009, offering owners incentives in the form of rebates, registration charge and road tax waivers for new cars exchanged for old vehicles that are driven to the scrapyard.

This sort of “freebate system” — a term coined in the US in the 1970s — has been adopted in recent years, not just in the US but in France and Finland, too. The policy seems sensible on paper and could well reverse, as it aims to do, the sharp fall in automobile sales and, hopefully, accelerate economic growth. But a Business Standard analysis shows that the government will need to move much more swiftly to ensure that the programme actually works in practice.

According to government records, there were 21.4 million cars older than 20 years on Indian roads till last year. Under the policy, passenger vehicles would require re-registration after the 15-year period and will have to go through periodic fitness and emission tests. If they fail the fitness test, they have to be replaced, potentially swelling the number of cars that head to the scrapyard. That’s a lot of scrapping to do. But the Indian policy is likely to hit a pothole right at the start, simply because the country does not have enough scrappage units to service this volume.


The biggest and oldest operational recycling facility is Mahindra Accelo, which set up India’s first scrappage facility with government-owned MSTC. Sumit Issar, managing director, Mahindra Accelo, said the joint venture could process 100,000 vehicles in their five plants, which cater to 22 cities. “We have targets of reaching 50 cities in the next three years and processing 300,000 vehicles,” he added.

The other major organised-sector scrap and recycling facility is in Noida, Uttar Pradesh, and is run by Maruti Suzuki Toyotsu India Private Limited (MSTI). Masaru Akaishi, MSTI managing director, said the facilities can scrap around 2,000 end-of-life vehicles (ELVs) per month, or about 24,000 ELVs a year.

Although the government has introduced the policy, the states are yet to develop their guidelines and ink deals with companies to set up scrappage units. Akaishi said MSTI had signed a memorandum of understanding with the Gujarat government to set up a facility in that state. And in December last year, the Tata group signed an MoU with the Maharashtra government to set up a scrappage unit. But the timetable and capacities of these facilities are unclear.

Even if these facilities come up in record time, it won’t be nearly enough to handle the volumes generated by the scrappage rules. Overall, even after accounting for small unorganised sector units, the present scrappage capacity in the country is just about 1,25,000 and is limited to a few cities. India will need to process at least four million vehicles each year over the next five years to scrap 21.4 million old vehicles — more if 15-year-old passenger cars fail fitness and emission tests.

Analysis shows that four states/Union Territories account for 57 per cent of the older vehicles in the country. Of this, four million or 18.4 per cent were in Karnataka, 3.6 million or 16.9 per cent were in Delhi, followed by Uttar Pradesh and Kerala. This offers a rough idea of where industrial-sized scrap yards need to be located.

If one accounts for vehicles between the age of 15 and 20 years, there were 19.8 million vehicles within this category, taking the total number of vehicles over 15-years old to over 40 million. By 2030, estimates show, India will add another 20 million vehicles.

“The entire scrappage system is being formalised with the entry of organised players. Only eight to 10 per cent end-of-life vehicles are being recycled in the unorganised sector at the moment,” said Rohan Rao, partner-industrials and automotive, KPMG in India.

He sees rapid growth in the automobile scrapping and recycling business in the years ahead. “There is a lot of value extracted from vehicles after scrapping. Metals, rubber and plastic parts, and lead from batteries are recycled and go back for various end uses. There is immense potential in this sector, and we see the market growing ten-fold over the next decade,” Rao added. But to achieve that, India will need to shift the pace at which it adds scrap yards into fifth gear.

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