Though the policy, curbing vehicles that are 20 years old from plying on the roads, aims to reduce pollution and generate demand for new vehicles, the impact will be minimum, writes Rakesh Rao.
The Government of India is coming up with a vehicle scrappage policy, which will stop plying of vehicles that are 20 years and older from 2020, to curb emissions and boosting demand for new vehicles. The vehicle scrappage scheme will be largely availed by commercial vehicles (CVs), which are used for more than 20 years. “Within CVs too, only medium and heavy commercial vehicles (MHCVs) have a life around 20 years, although even their volumes would be quite limited in the vehicle park. We believe around 50,000 CVs will be eligible for the scheme. In contrast, passenger cars, utility vehicles, two-wheelers and three-wheelers generally do not have life exceeding 20 years and will have a negligible contribution to population of vehicles older than 20 years,” says Binaifer Jehani, Director (Research), CRISIL Limited.
Though the policy aims to curb pollution and generate demand for new vehicles, experts believe the impact will be minimum. Binaifer Jehani explains, “The BS I emission norms were introduced in India in the year 2000, while the BS II norms were implemented nationwide in 2005. Considering this policy is implemented in fiscal 2019, vehicles older than 20 years will be those bought in fiscal 1999 and earlier. While this will target pre-BS norm vehicles, there will be very few such vehicles in the population park, since very few MHCVs survive beyond 20 years (negligible number of cars, two-wheelers and three-wheelers of this age in population park). Hence, the reduction in pollution will be limited to the extent of around 50,000 CVs which can avail the scheme. Moreover, around 70,000-90,000 vehicles get scrapped every year. Hence incremental vehicles induced to opt for the scheme (over and above those who already scrap vehicles) will be minimal.”
Challenges a plenty
While as per the new policy draft vehicles older than 20 years are eligible for the benefits, the earlier draft, first released on May 26, 2016, included vehicles which are 15 years and older. Experts believe benefits would have been manifold if the eligibility age was retained at 15 years. The number of vehicles, especially CVs in this age group would have been higher (as compared to those older than 20 years).
“Our estimates suggest around 640,000 vehicles would have opted for the scheme (as per the earlier draft). If we exclude 70,000-90,000 vehicles which get scrapped every year, this would mean, that around 400,000 vehicles would have incrementally opted for the scheme, over and above the vehicles which anyways get scrapped every year (assuming a 3 year implementation period). This would have been more effective in reducing the pollution levels. Another aspect to consider is that most of these older vehicles ply in tier III cities and rural parts of the country. On the other hand, younger vehicles (less than 10 year old) ply on trunk routes and urban areas. Hence, the reduction in pollution will be limited to the interiors of the country,” says Binaifer Jehani.
Besides, there are many challenges to implement the revised vehicle scrappage policy. One of the important things to consider is that the owner of a 20 year and older vehicle is not the buyer of a new vehicle. A 20 year old vehicle is generally a third or fourth hand vehicle (such vehicles ply short distances and their freight rate eco-system is also such that it supports requirement of this vintage). Hence, Binaifer Jehani says, the government will need to make the certificates (issued to the scrapper of the vehicle) tradable or provide direct cash benefit to him or her.
Also, considering the upshift in tonnage segment in the CV industry, more and more transporters are looking at buying higher GVW vehicles. “While the scrapped vehicle might be of a lower GVW, the transporter would want to buy a higher GVW vehicle (since it will make more economic sense). The government will need to clearly specify the flexibility the transporters will have in doing so,” says Binaifer Jehani.
Most of these older vehicles ply in tier III cities and rural parts of the country. On the other hand, younger vehicles (less than 10 year old) ply on trunk routes and urban areas. Hence, the reduction in pollution will be limited to the interiors of the country,”
– Binaifer Jehani,
Director (Research),
CRISIL Limited
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