Incentivising Organised Vehicle Scrapping: Government Plans To Set Up Centres In Every District Across India

According to information given by the Union Minister of Road Transport and Highways in a written reply to a question in Lok Sabha on 24 March 2022, there are nine vehicle scrapping centres functional in the formal sector. Eight of them are located in Delhi and one is in Chennai.

These centres are in the process of obtaining authorisation as per the Motor Vehicles (Registration and Functions of Vehicle Scrapping Facility) Rules, 2021.

Vehicle Scrapping

The vehicle scrappage ecosystem envisages creating a mechanism to retire ‘end of life (ELV) vehicles’. These are vehicles that are no longer fit to be driven on roads and have high negative externalities such as pollution emission, lower fuel efficiency and safety risk for commuters.

These ‘end of life’ vehicles are most appropriate for scrapping. India has more than one crore vehicles without a valid fitness or registration certificate, according to the data available on Vahan database of the Ministry of Road Transport and Highways. Moreover, it is estimated that nearly 13-17 crore vehicles would reach this stage in the next 10 years.

Scrapping of an end-of-life vehicle (ELV) can generate not only ferrous and non-ferrous metals but also other materials like plastic, glass, rubber, textile, etc, which can be recycled or shredded for use as fuel for energy recovery.

Circular Economy

The automobile scrappage initiative is an important link in the circular economy (waste to wealth) and makes the process of economic development more sustainable and environment-friendly.

An economic approach aimed at eliminating waste and the continual use of resources, circular economy offers a new paradigm that emphasises on the need to take a comprehensive view of products and processes. Our production systems must adopt practices around the principles of circular economy so that they not only reduce resource dependency but also gain competitiveness.

Since the second industrial revolution, our economy has been linear, working on take-make-use-dispose principles. On the one hand, this has resulted in increased economic benefits and prosperity, but on the other hand, it has also led to the overuse of resources by promoting a ‘use-and-throw’ approach.

To address this issue, we need to focus on resource efficiency by adopting a circular economy. The circular economy is defined as an alternative to the linear ‘take-make-waste’ approach. It seeks to design our waste, regenerate natural ecosystems and keep materials and products in use for as long as possible. To this end, resources are not consumed and discarded, destroying their value. Rather, their value is retained by reusing, repairing, remanufacturing or recycling.

Adopting a circular economy results in extended life of products and assets by recycling/upcycling end-of-life products and closing the loop.

Unorganised Scrapping

At present, there exists an unorganised informal market for vehicle scrapping in India. The informal and unorganised vehicle recycling sector mainly consists of traders, dismantlers, scrap dealers and recyclers.

The Ministry of Road Transport and Highways had undertaken a study to evaluate and understand the existing operations of these scrap yards. The study established them as common open areas shared by multiple mechanics and repair shops. Vehicle dismantling in these scrap yards is a purely manual process employing about three-four people with no special machinery used for dismantling parts.

These yards primarily source vehicles from brokers, used car dealers, private bus/taxi operator associations or mechanic shops and, at times, even stolen vehicles are dismantled here. Brokers typically source from auctions through vehicle finance companies, insurance companies and police departments.

Mayapuri in Delhi, Kurla in Mumbai, Pudhupettai in Chennai, Mallick Bazaar in Kolkata and Jawahar Auto Nagar in Vijayawada are some famous vehicle scrapping ecosystems present in urban areas across India.

Problem With Unorganised Scrapping

The existing vehicle dismantling and recycling industry in India is unorganised and recycling of older vehicles is not done in an environment-friendly manner. At the same time, it is highly unstructured and labour-intensive.

Since the informal sector uses crude methods for dismantling and recycling, it not only leads to inefficient resource management, but also non-realisation of the full value of high-strength steel alloys and recovery of valuable rare-earth metals.

The existing ELV scrapping cycle has a low recovery percentage and many materials get wasted or are not properly recycled. As per unofficial industry estimates, the recovery percentage in India is about 70-75 per cent, while global benchmarks for recovery from scrapped vehicles are in the range of 85-95 per cent.

The Lure Of Organised Scrapping

Unorganised vehicle scrappers have typically better economics on the process than their formal counterparts. While an organised player pays somewhere between Rs 25,000 to Rs 80,000 per vehicle, the compensation offered by the unorganised sector is more.

The new scrapping policy, thus, is a government-led initiative to bring organised players in the scrapping value chain, primarily to ensure environment friendly dismantling of ELVs and institute a circular economy in the automobile sector.

Organised players promote scientific recycling within the scrapping industry across the entire value chain. Take for example — the engine oil, transmission oil, brake oil, coolant are drained from ELVs with zero waste in the organised sector, against the informal market where it is released into the open.

Freon, the gas employed in air conditioning is removed without any discharge to the atmosphere. On the other hand, due to primitive methods employed in the informal market, the gas is more often released into the atmosphere. R-22 refrigerant, commonly known by its trade name of Freon, have been known to erode the Earth’s protective ozone layer and contribute to climate change.

Framework

The Ministry of Road Transport and Highways has formulated the Vehicle Scrapping Policy in 2021 that includes a system of incentives/disincentives for creation of an ecosystem to phase out older, unfit polluting vehicles. The policy is based on fitness of the vehicle and not on the basis of the age of the vehicle.

The policy aims to reduce pollution by scrapping more than 1 crore unfit vehicles, improve road and passenger safety, boost auto sales, improve fuel efficiency, formalise scrappage industry and boost availability of low-cost materials for the industry

The government has issued a number of notifications in order to create the ecosystem for scrapping such vehicles, under the framework of the Motor Vehicles Act, 1988 and Central Motor Vehicle Rules, 1989.

The Policy Update

The voluntary vehicle-fleet modernisation programme (Vehicle Scrapping Policy) has envisaged a network of registered vehicle scrapping facilities (RVSFs) for carrying out dismantling and scrapping operations.

The Ministry of Road Transport has come out with detailed procedures for setting up of RVSFs as per Motor Vehicles (Registration and Functions of Vehicle Scrapping Facility) Rules, 2021.

Under the policy, around 50-70 RVSFs will be set up across the country during the next five years to cater to the expected demand for scrapping of unfit vehicles in a safe manner.

RVSFs would be required to promote safe scrapping of vehicles and enhance value recovery. These centres shall conduct environment friendly and safe scrapping of vehicles as per the guidelines issued by the Central Pollution Control Board (CPCB) and State Pollution Control Boards (SPCBs).

There are plans to provide access to the database of National Crime Records Bureau (NCRB) and Police for conducting vehicle verification before scrapping them. These centres would also be integrated into the Vahan database of the Ministry of Road Transport for de-registering all such vehicles which have been scrapped and recycled.

The comprehensive infrastructure and use of the scientific scrapping process will enhance the value recovery ratio from around 70 per cent at present to 90-95 per cent. The registered facilities will also collaborate with local kabadiwalas and help them set up collection centres for ELVs.

New Centres On The Block

The organised scrapping units in the country are coming up around auto hubs, like Noida-Greater Noida, Gurgaon and the Gujarat automotive belt. The government plans to have three to four scrapping centres in every district across the country.

Maruti Suzuki Toyotsu India Private Limited (MSTI), a government approved ELV scrapping and recycling unit which is located in Noida was opened in November 2021. The said unit has a capacity to scrap and recycle over 24,000 ELVs annually and has been built at an estimated cost of Rs 44 crore.

The USP of the facility include environment-friendly and safe scrapping and recycling of ELVs, zero discharge of oil and AC gases to land or air and also, radioactive material scanning. The entire process takes 200 minutes for one car after which the body shell finally shrinks to a 60 cm x 60 cm x 60 cm metal cube (length can vary depending on the car model).

Similarly, Mahindra MSTC Recycling Private Limited (MMRPL), a joint venture between Mahindra Intertrade Ltd and MSTC Ltd, a government of India enterprise, also offers its customers an end-to-end solution for scrapping their vehicles.