With a view to combating deteriorating air quality, stringent environmental regulations are being mooted. The automobile industry in India has been meeting these challenges. In recent years, the industry has made significant investment to produce safer and increasingly environment friendly vehicles.
The Bharat stage-1 norms for vehicles were introduced in India in April 2000. These norms were then progressively tightened to BS-2, BS-3, and today four wheelers manufactured since the year 2010 in major cities meet Bharat Stage-4 emission norms, which are more than 50 to 80 percent cleaner than the vehicles that were produced before April 2000.
In order to improve the environmental performance of new vehicles further government has plans to introduce BS-5 emission norms in 2020 and BS-6 in 2024 onwards. This policy lays the foundation of control of emissions from vehicles sold in the country.
However, whilst the new vehicles are cleaner and meeting stringent emission requirements and a continuous plan is being evolved by the government of India to further improve the emission performance of these newly manufactured vehicle, the benefits are not getting reflected in the ambient air quality due to the presence of a large number of old and ill maintained polluting vehicles, which continue to ply on the roads, in the absence of an efficient scrappage/fleet modernisation policy in the country.
2. Need for Fleet Modernisation in India
The Automotive industry in India over the years has become instrumental in the growth of R&D in the country through localization and indigenization of technology over the past few decades. Several players have undertaken acquisitions and forged alliances with multinational firms to gain technical know–how and fast–track their progress on the technology roadmap.
However, at present, India does not have a robust national policy on retirement of vehicles or end-of-life of vehicles. Hence, it is important to capitalise on the developments that the industry has catalysed in the country, over the last two decades. Vehicle users in India tend to continue to use their vehicles, well beyond the expected life of the product. Such old vehicles have:
- Higher emissions
- Lower fuel efficiencies
- Lower safety standards
which will address all the above challenges and also improve the image of the in use vehicles on our roads. Additionally, fleet modernization of government departments can also be included.
3. Approach for Scrapping of vehicles
World over vehicle scrappage and fleet modernisation is regulated through an end of life policy, which is implemented through a robust Inspection and Certification system. Notwithstanding a robust I & C system in countries like Europe, etc. even these countries had to resort to schemes like Cash for Clunkers for weeding out old and polluting vehicles and replacing them with new environment friendly ones.
In India I & C system is now in the process of being set-up. Having started late, the Indian I and C programme can be expected to become operational only after 4 to 5 years. Secondly, I & C for private vehicles is yet to be conceptualised in India, as the present programme is limited to Commercial Vehicles. All these reasons point to an urgent need for an alternative initiative to cleanse the Indian roads of old and polluting unsafe vehicles, till the time the I & C mechanism takes root in the country.
SIAM would suggest that in order to mitigate immediate air quality problems and decreasing the menace of road accidents, rather than a mandation, a limited-time incentive scheme for retirement of old vehicles is required.
A cut-off point of 15 years vintage is considered for all vehicles, for replacement under the fleet modernisation programme. Similar schemes have been successfully implemented in some of the countries, such as, the USA, Canada, the UK and Italy by providing fiscal incentives and concessions for replacement through a single window fleet modernisation programme. The accelerated fleet modernisation programme in the USA allowed owners to voluntarily retire their older vehicles emitting higher pollution. The primary objective of fleet modernisation programme was to reduce pollution by accelerating normal fleet turnover so that new, cleaner vehicles can be put into use sooner than would occur in the normal course. The impact of incentive schemes in the countries had been encouraging.
This concept was also recommended in India’s Auto Fuel Policy released in October 2003 (page 6 point 24), which is a Union Cabinet approved policy document and still guides India’s automotive emission control and fuel policy, but this particular recommendation has still not been implemented. The policy states: “... Schemes combined with incentives would be developed for the replacement of old polluting vehicles.” It would help in removing older, potentially polluting and unsafe vehicles from the road. The replacement of these older vehicles would also have an additional favourable impact on the economy.
This programme would generate additional demand for new vehicles and make the scheme potentially revenue positive from the government’s point of view.
Also, the country would benefit by way of reduction in expenditure on account of fuel saving by retiring old vehicles and replacing them with more new ones, which are more fuel efficient. Most importantly, the reduction in pollution would lead to substantial health benefits and the resultant reduction in cost of medical treatment, reduction in premature deaths, reduction in man days lost on account of illness and so on.
Therefore in India, this scheme will have benefits of reducing pollution, reducing fuel consumption and improving safety (reducing fatalities from 130,000 people presently killed annually in road traffic crashes).
The fleet modernisation programme should encompass all vehicles, both private and commercial use with a cut-off point of pre 2000 vintage.
Keeping in mind the socio-economic and political implications that the scheme may have, it should focus on incentives rather than simple mandates. In the present Indian scenario, it seems more feasible to encourage people rather than to force them to replace their old vehicles with new ones.
The proposed scheme requires support from both the State Government and the Central Government. The Governments at both levels would need to come together to make this programme successful by providing fiscal incentives for fleet modernisation.
- For successful implementation of the scheme, following elements are critical:
- Encouragement to the last owner to scrap the old vehicle
- Provision of environment friendly scrapping of the vehicle by notified agencies eg: MSTC, in the presence of RTO officers.
- RTO to de-register the vehicle and issue a Scrappage Certificate to the registered owner.
- Scrappage Certificate to be treated as a tradeable certificate for availing of tax concession on purchase of new vehicle
These elements are explained in more detail in the scheme as detailed in the following sections.
To encourage old vehicle owners, government should incentivise by way of waivers:
- 50% waiver of Excise duty
- 50% waiver of Sales tax
- 50% of Road tax
This will be a revenue positive proposition since the waivers are being given only on incremental sale of vehicle, which will be possible only if the old vehicle is scrapped. In order to initiate this scheme, the Road Transport Authorities should authorise nodal agencies eg: MSTC in setting up Scrap Yards across the country.
To avail incentives, at the time of delivery of the new vehicle, the old vehicle has to be necessarily scrapped. A suitable mechanism has to be evolved to ensure destruction of the old (exchanged) vehicle. The Certificate of Destruction (CoD) will be issued in the name of the registered owner by the State Road Transport Authority.
5. Replacement Scheme across India
Given the profile of vehicle population in India, the suggested scheme would offer an effective solution to the problem of vehicular pollution faced by India. This scheme will be valid and operational across India.
6. Steps for Availing the Scheme
All vehicles manufactured on or before April 2000, the year Bharat Stage-1 was introduced, would qualify under the Project Modern Fleet vehicle replacement scheme from 1st April 2015.
- Step-1: The last owner of the old vehicle decides to avail the benefit of the scheme ‘Fleet Modernisation’, only for purchasing a vehicle of same category.
- Step-2: The vehicle owner visits the nearest vehicle dealer for purchasing a new vehicle, with all necessary documents of the old vehicle. At the time of availing the scheme, it should be ensured that the vehicle has all valid documents, such as Road Tax receipts, Insurance, etc.
- Step-3: The customer hands over the old vehicle to the dealer who further sends it to the scrap yard for scrappage. The dealer will inform the customer that Certificate of Destruction (CoD) could be collected after a few days – may be a week – once the vehicle is completely scrapped.
- Step-4: The Dealers are expected to send all the collected vehicles to the authorised scrap yards, eg: MSTC for scrapping of the vehicles in an environmentally safe process under due supervision of the regional transport authority. The revenue generated by selling the old vehicle to the scrapyard, eg: MSTC will be distributed among the two parties at the ratio of – Dealer (15%) and Customer (85%).
- Step-5: The Regional Transport Authority issues a valid Certificate of Destruction (CoD) and will de-register the scrapped vehicle.
- Step-6: The CoD should necessarily contain all the information given in the registration certificate, such as date of manufacture of scrapped vehicle, model, engine capacity, fuel used, gross vehicle weight (GVW), etc.
- Step-7: Once the customer received the CoD, he or she is entitled to incentives against purchase of a new vehicle, of the same category as that of the old one. The invoice for the new vehicle will reflect a value equivalent to 50% of the Road tax and Sales tax and deduct additional value of 50% of the Excise duty for the vehicle. However, the total rebate of Sales tax and Excise duty together may not exceed a pre-determined value. This CoD would be tradeable within the State/Union Territory where the scrappage took place.
- Step-8: The vehicle dealer receives a copy of the CoD. The dealer could be authorised to give any new customer a new vehicle, of the same category registered in that State, with the agreed discount/incentive. The dealer will pay the rebated Sales Tax amount on the basis of the CoD. Similarly, the manufacturers will adjust the Excise Duty rebate amount in their current PLA/ Credit Account against the CoD, as per the present practice of excise duty refund for Taxis.
- Step-9: The CoD is to be treated as a tradeable instrument having jurisdiction within the state. i.e. if a vehicle is scrapped in Mumbai, the benefits of the scrap certificate should be available during purchase of a vehicle anywhere within the state of Maharashtra. The certificate should be made tradeable also within the state.
7. Preliminary estimation of benefits
Assuming that all vehicles sold under the programme are replacements and as such additional sales, over and above the normal sale, there will be a revenue positive impact.
It is estimated that the above scheme would initiate a replacement of about 24.2 million Private vehicles and 3.2 million Commercial Vehicles, in the above eight States. Similarly, it can be extended across the country. Hence, from the above table, having data for the eight states, we can easily estimate that the revenue generation for the government, across the country, would be significantly higher than the amount generated in eight states.
Analysis shows that 60-80% of pollutants generated by on-road vehicles are from older vehicles (>10 years of age), which constitute just 20-30% of the total vehicle population. Emission benefits by replacement of Commercial vehicles older than 15 years and private vehicles more than 10 years old in India would result in about 80- 90% reduction engine out emissions from the new fleet. The reduction from each pollutant for the given fleet replaced is indicated below. Therefore, by retiring older vehicles, the impact on air quality would be significant.
Further, older vehicles consume more fuel as compared to newer vehicles with modern technology. It is estimated that that the amount of petrol consumed nationally could reduce by about 5%, if older (>10-15 years of age) vehicles are replaced by newer vehicles.
It is estimated that if more than 15 year old Two-Wheelers are replaced with new Two Wheelers, Passenger Cars and Commercial Vehicles in these Seven States, which would obviously have better Fuel efficiency, then the total fuel saving would be in the tune of 7,862 million litres of saving per annum. This translates to about Rs 490,000 Crores of saving for the country.
Fleet Modernization programme could contribute to reduction of annual Operation & Maintenance costs by 8-10% and periodic maintenance costs by 20-25%. It is estimated that approximately 8-10% of annual O&M costs and 20-25% of periodic maintenance costs of highways can be attributed to vehicular related factors, such as overloading, poorly maintained vehicles, etc. Old and poorly maintained vehicles contribute a proportion of these costs.
It is estimated that currently less than 1% of vehicle population is retired annually in India, but none of these vehicles is officially de-registered. A majority (70-80%) of these vehicles is more than 15 years of age and is scrapped on account of accident, old age or government norms.
Existence of such old fleet affects the image of the country, which is the world’s second largest two wheeler and bus manufacturing country, seventh largest commercial vehicle manufacturer and sixth largest passenger vehicle manufacturer.
Other Approaches for supplementing the Modern Fleet Scheme
In order to discourage people from running old polluting vehicles, the rate of road tax and rate of premium on motor vehicle insurance could be increased progressively with the age of the vehicle.