India's Vehicle Scrappage Policy envisages the creation of scrapping infrastructure throughout the country – a push towards introducing circularity practices in the automotive industry. How does the policy compare to international circularity practices in the automotive industry and what are the hurdles?
What is the National Vehicle Scrappage Policy?
On 13th August 2021, Prime Minister Modi launched the Vehicle Scrappage Policy. The policy was introduced to reduce India's vehicular air pollution, of which the transport sector contributes 14%, by phasing out old and unfit vehicles in an environment-friendly manner. Even though vehicle scrappage will be voluntary, the Policy requires both private and commercial vehicles to undergo mandatory fitness tests once their registration certificates have expired.1 Thus, over 15 years old commercial vehicles and over 20 years old personal vehicles that do not pass such fitness and emission tests will be seized and scrapped.
The Policy envisages the creation of scrapping infrastructure throughout the country. Through the Voluntary Vehicle Fleet Modernisation Programme, the Government proposes to set up between 450–500 automated vehicle fitness testing stations across India on a public-private partnership basis. Failure in the fitness tests means that vehicles will not be eligible for renewal certificates, rendering them unfit to ply on the roads. Around 50–70 vehicle scrapping centres (or registered vehicle scrapping facilities) are expected to be built to further this policy.2
In order to incentivize the purchase of new vehicles against the scrapping certificate of the old vehicles, the government has proposed that state governments offer a road tax rebate of up to 25% and waiver of registration fees and advised a 5% discount from car manufacturers.
What does a Circular Economy mean for the Automotive Industry?
A circular economy is a model of production and consumption that entails sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products. It replaces the end-of-life concept by recycling and regenerating products at the end of each life-cycle stage.
Concerns of climate change and environmental and ecological damage have necessitated a rethinking of the importance of sustainability within the automotive industry. The Capgemini Research Institute in its report identified two key areas that will drive maximum sustainability in the automotive industry – ensuring the long-term success and sustainability of electric vehicles and incorporating circular economy ("CE") practices in the automotive value chain.
The Indian government has been focused on promoting the sale of electric vehicles, through the National Electric Mobility Mission Plan 2020 and the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) ( extended by two more years till 2024).
As the Prime Minister's comments indicate, the Vehicle Scrappage Policy is a push towards introducing circularity practices in the automotive industry and should help reduce carbon emission and air pollution, while promoting jobs and economic development. This is a welcome move, and should be seen in the context of the recent government and industry conversations and collaborations around CE opportunities in India's electronics and electric sector, metals and mining, agriculture, and automotive sectors.
A recent Accenture-World Economic Forum (WEF) report recognized that CE approaches can help the automotive industry decrease the lifecycle carbon emissions per passenger km by up to 75% by 2030. It proposes the idea of a "circular car" that has achieved maximum materials efficiency, minimized materials waste and pollution during manufacture, utilization, and disposal. The following illustration from the report best explains how this can be achieved:3
The car giant, Renault Group, incorporates similar design thinking in its circular activities, where it focuses on (i) eco-conception while manufacturing new vehicles (replacing raw materials, based on natural resources with secondary, recycled materials); (ii) the end of automotive life (recycling its parts and materials); (iii) reusable vehicle parts (reusing parts coming from End-of-life vehicles, sales network, plants or suppliers in specific and affordable after-sales offers); and (iv) recycling loop (to close the loop by repurposing materials for a second life in new vehicles).
How does the Vehicle Scrappage Policy further the goal of a Circular Economy?
If we compare India's Vehicle Scrappage Policy to international circularity practices in the automotive industry, certain similarities can be seen. First, by removing unfit vehicles from the road, the Policy will increase an automobile's fuel efficiency and reduce hazardous emissions. As this Forbes India opinion piece reports, "emission reduction by taking a less-than 10-year-old truck or bus off the road and replacing it with a recent model could lower PM emissions by 28 percent, HC+NOx (hydrocarbons and nitrogen oxide) emissions by 18 percent, and carbon dioxide emissions by 17 percent".
Secondly, the recycling and reuse of vehicle scraps as part implementing of the Vehicle Scrappage Policy will have significant environmental and economic benefits. Advanced recycling centres, akin to those present in Japan and the United States, allow material recovery of up to 85–90% in the initial stages of vehicle scrapping. The implementation of the Policy would inevitably require the setting up of automated fitness centres and authorised scrappage centres across the country, which will have additional downstream economic benefits. In fact, in June 2018, the first automated and authorised vehicle scrapping & recycling facility was set up in Greater Noida. Mahindra & Mahindra, in collaboration with MSTC (a government-owned company) constructed this facility to recycle steel, batteries, electronics, engine parts and other metals, etc., and re-roll them in the domestic industry.
Third, some experts believe is that the Policy will help move away from the more harmful practices of vehicle material scrappage, improve recycling, reduce pollution, and create new jobs. Recycling the end-of-life vehicles will create steel scrap, aluminum, and copper, which can reduce the import bill for metal scrap. In fact, for all these reasons, FICCI recognized the recycling of steel from automobiles as a "significant CE opportunity" in India.
We, at Ikigai Law, have emphasised the need for strengthening the use of secondary material in our comments to the MeitY on the draft policy paper on 'Circular Economy (CE) in the Electronics and Electrical Sector'. We believe that an enabling framework that ensures efficient e-waste collection, re-use, recycling, and safe disposal must be prioritised. By focusing on greater use of secondary material, i.e., vehicle scraps, the Policy incorporates this aspect.
What are the Potential Hurdles to the Implementation of this Policy?
The primary hurdle to implementation is the development of infrastructure required to give a thrust to a circular economy. Since the execution of this Policy will happen in a phased manner from 2022-24, there has to be diligent investment in the next two years in developing modern and compliant infrastructure. Furthermore, since the Policy envisages state rebates up to 25% on road taxes, it may lead to potential challenge for cooperative federalism. Finally, the Policy does not discuss the manner in which vehicle scraps shall be reused in the domestic industry, which may obscure its contribution to a CE approach. If the finer details of these aspects can be ironed out, India will be one step closer towards achieving a CE.
The Vehicle Scrappage Policy is an important first step, but its focus is at the end-of-the value chain. Much more needs to be done in terms of incorporating CE practices throughout the automobile industry value chain, including during product design and development, responsibly sourcing raw material, component manufacturing, waste management, using remanufactured vehicle parts, after sales services, and recycling. Only then can we attempt to stave off some of the harmful effects of climate change.
1 Registration certificate for passenger and commercial vehicles are valid for 15 and 20 years, respectively.
2 For instance, Tata Motors' vehicle scrapping centre will be set up in Gujarat, will scrap both passenger and commercial vehicles and will have the capacity to recycle up to 36,000 vehicles a year.
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