Union Budget 2021 | Private vehicles older than 20 years to be scrapped

Finance Minister Nirmala Sitharaman announced the much-awaited vehicle scrappage scheme in the Union Budget on February 1, bringing relief to the automotive sector.

“We are announcing a voluntary vehicle scrapping policy to phase out old and unfit vehicles. Vehicles would undergo fitness tests in 20 years in the case of private vehicles and 15 years in the case of commercial vehicles. Details will be shared separately," Sitharam said.

The scheme would benefit a very limited set of buyers as the average age of a private vehicle (passenger vehicles and two-wheelers) in India is not more than eight years and for trucks and buses not more than 12 years, as per estimates.

Vinkesh Gulati, President, Federation of Automobile Dealers Association said “If we take 1990 as base year, there are approximately 37 lakh commercial vehicles (CV) and 52 lakh passenger vehicles (PV) eligible for voluntarily scrappage. As an estimate, 10 percent  of CVs and 5 percent of PVs may still be plying on road. We still need to see the fine prints to access the kind of incentives which will be on offer and thus have a +ve effect on retail".

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Scrappage policy has been the second biggest demand from the automotive industry. The policy which has been in the works since July 2019. The earlier proposal was to allow the scrapping of vehicles older than 15 years in a bid to spur the adoption of electrical vehicles.

There are an estimated 6 million vehicles on Indian roads that are more than 15 years old and are in need of a replacement. According to the government, these vehicles are the prime contributors to vehicular pollution. As per an HDFC Bank report an estimated 9 million vehicles will fall under this category by FY21 and 28 million by FY25.

While the Ministry of Road Transport and Highways (MORTH) moved in to scrap all vehicles older than 15 years registered with government departments from April 1, 2022, there has been no similar notification for privately owned vehicles. MORTH, however, did propose to levy a ‘green tax’ on all those vehicles which are older than eight years.

The green tax, which will require the nod of states, is widely considered to be a precursor to vehicle scrapping policy. This was done to help get older, more polluting vehicles off the road by providing incentives to vehicle owners to move to Bharat Stage VI standard, which is the latest emission norm.