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Vehicle Scrappage Policy | 5 Points Analysis

Vehicle Scrappage Policy | 5 Points Analysis | Yadnya Investment Academy

Published on 21 March 2021 .Views 42 .Comments 0
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Union Minister Nitin Gadkari has introduced the Vehicle Scrappage Policy in Lok Sabha on Thursday 18th of March, 2021. Let’s read more about this policy in 5-point analysis.


  • For the first time, discussion regarding scrappage policy was started in June 2019 where Central Government proposed amendments to the Motor Vehicle to allow scrapping of vehicles older than 15 years.
  • Furthermore, in Budget 2021 Finance Minister Nirmala Sitharaman announced Voluntary Vehicle Scrapping Policy based on fitness test for personal vehicles which are older than 20 years and Commercial Vehicles which are over 15 years old
  • What is Vehicle Scrappage Policy:

Vehicle Scrappage Policy is a policy which lays directions for scrapping of old vehicles which are unfit and same to be replaced with new vehicles along with some benefits and rebates to the owners.

  • What is the need of Vehicle Scrappage Policy?
  • To encourage fuel-efficient environment friendly vehicles.
  • To reduce air pollution and oil import bills.
  • For the same, Automobile fitness centres would be set up across the country to check the health of vehicles and will also provide handout certificates for scrapping.

4 major components of Vehicle Scrappage Policy:

i) 5% rebate on new purchases:

  • Customer will receive 5% rebate on purchase of new car on scrappage of his/her old vehicles.
  • This rebate will be provided by Automobile manufacturers (OEMs) on purchase of new car to the consumers who will present the Scrapping Certificate.

ii) Green Tax Proposal:

  • Under this proposal, Government plans to impose “Green Taxes” on old polluting vehicles.
  • Transport vehicles which are over 8 years old could be charged Green Tax at the rate of 10% to 25% of road tax.
  • This tax can be charged at the time of renewal of fitness certificate.
  • Personal Vehicles can be levied the same tax post 15-years.
  • Hybrid Vehicles, EVS and Vehicles running on Alternate fuels like CNG, ethanol & LPG will be exempted from the Green Tax.

iii) Automated Fitness Test:

  • Old polluting vehicles will be required to undergo mandatory fitness and pollution tests which will be conducted at Automated Fitness Center and this test will as per international standards.
  • Automated fitness tests and Scrapping Centres will be set up under public private partnership (PPP) mode.

iv) Value Addition through Scrap Material:

  • Scrap material will create a lot of value addition.
  • This value addition can be in the form of raw materials like Steel, Plastic, Rubber, Aluminum, etc. would be recycled.
  • Recycle of such raw material will reduce the manufacturing cost of companies by 30%-40% and for the same reason OEMs might further be able to provide 5% rebate to consumers on new car purchase.

Financial Incentives for Consumers:

  • Scrap value for the old vehicle given by the scrapping centre, which is approximately 4-6% of ex-showroom price of a new vehicle.
  • Also, consumer will receive 5% rebate on purchase of new vehicle against the scrapping certificate.
  • Above points clearly implies that around 10% of the value of price of new vehicles will be received as rebate by the consumers.
  • State governments advised to offer a road tax rebate of up to 25% for personal vehicles and up to 15% for commercial vehicles. Increase in GST collection for both Central & State Government can be the after-effect of this policy as there will be new purchase of vehicles.
  • Registration fees to be waived off for the purchase of a new vehicle against the scrapping certificate.

Positive Impacts of Vehicle Scrappage Policy:

i) Big Boost for Indian Auto Industry and Turnover:

  • Current Turnover of Indian Automobile Industry is Rs. 4.5 Lakh Cr. After the introduction of Vehicle Scrappage Policy, the turnover of the industry can increase by 2.2 times and reached to the level of Rs 10 Lakh Cr. in coming 5 years.
  • The recycling of raw material derived from scrapping of old vehicles is expected to reduced manufacturing cost of OEMs by 30% to 40%, which also provides a profitable base for the auto companies, which provides them the opportunity to focus on exports as well.
  • Currently, Export Turnover of Auto Industry in India is 1.45 Lakh Cr. which might rise by nearly 2 times and can reach to 3 lakh crores in next 5 years post the introduction of this policy.
  • Overall, Indian Auto Industry can move from its current turnover of Rs. 6 lakh Cr. to Rs. 13 Lakh Cr. by 2026.

Indian Auto Industry Turnover & Exports

ii) Helps in reducing India’s Huge Crude Import Bills:

  • As per the stats, India’s crude import bills are likely to be increase up to Rs. 18 Lakh Cr. which will be mainly driven by low-mileage old vehicles.
  • Introduction of Scrappage Policy will increase efficiency as the old polluting vehicles will be scrapped.
  • Moreover, it will boost to new technologies with better mileage of vehicles.
  • Also, the vehicle scrappage policy will promote Green fuel and electricity.
  • The above pointers if worked effectively then it could certainly reduce the India’s Crude Import Bills.

iii) Increase in Vehicle Demand and projection of robust growth in revenue:

  • According to the data submitted by Mr. Nitin Gadkari in Lok Sabha, around 1.02 Cr. vehicles are likely to go under scrapping as per the policy.
  • Also, this policy might act as a big boost to “Aatmanirbhar Bharat” Campaign.
  • Auto Industry may also get benefitted from the Production Linked Incentive (PLI) Scheme.
  • Below are the estimated number of types of vehicles which can go under scrapping as per the Scrappage Policy:

Estimated Number and Types of Vehicles


iv) Employment Opportunities:

  • Auto Industry has a potential of creating around 3.7 Cr. jobs directly as well as indirectly.
  • Around Rs. 10,000 Cr. will be infused in the Automated Fitness Centre which may create nearly 50,000 jobs.

Key Headwinds:

i) Implementation Challenges:

  • Prime concern for launching of this policy will be regarding lack of infrastructure to build well organized scrapping centers and recycling as per standards.

ii) To further incentivize the consumer, there should be GST concessions on purchase of new vehicles. Currently, Tax rate in India on purchase of new automobiles are very high which ranges between 28% to 43%. Vis-à-vis, GST on Electric Vehicles (EVs) is just 12%.


The Vehicle Scrappage Policy announced by the Finance Minister in 2021 has gained its shape in the latest draft presented by Union Minister Nitin Gadkari in Lok Sabha. The policy comprises several proposals which may prove to be boon for Indian Auto Sector and economy as well. From environment point of view, this policy will help in scrappage of old polluting vehicles and will assure environment-friendly vehicles running on the road. This policy is an appreciable move by government, but certain headwinds exists and same has be to be looked by government for better implementation of the policy.


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