Union Budget 2021: Vehicle Scrappage Policy Announced

News Highlights

• The automobile industry in particular has received a welcome relief in the form of a new vehicle scrappage policy.
• In the Union Budget 2021, Nirmala Sitharaman announced the Vehicle Scrappage Policy to phase out old and unfit vehicles
• For the uninitiated, Vehicle Scrappage Policy is a program under which the old vehicles give way to the new ones

Today, Union Finance Minister Nirmala Sitharaman announced a slew of measures to boost the Indian manufacturing sector. The automobile industry in particular has received a welcome relief in the form of a new vehicle scrappage policy. In the Union Budget 2021, Nirmala Sitharaman announced the Vehicle Scrappage Policy to phase out old and unfit vehicles. Under the policy, personal vehicles will undergo a fitness test in automated fitness centres after 20 years of use. On the other hand, commercial vehicles will undergo the automated fitness test after 15 years of use. The policy would come as a huge boost to the struggling automobile industry which is hit badly by COVID-19 pandemic in 2020. Taking into consideration the BS6 emission norms transition, the automobile industry has gone through a harsh couple of years. Automobile sales plunged by almost 18 per cent to 21.5 million units last financial year and fell by another 24 percent to 13 million units till December FY21.

More details are awaited but this is a good piece of news for the automotive industry in general. For the uninitiated, vehicle scrappage policy is a program under which the old vehicles give way to the new ones. This scheme is meant to encourage vehicle owners to scrap vehicles older than 20 years and buy a new car. To make the scheme successful, the government offers financial incentives or tax-related benefits to the consumers on buying new vehicles. This significantly reduces air pollution as older and polluting vehicles are phased out from the roads. Last month, the MoRTH pushed a vehicle scrappage policy for 15-year-old vehicles owned by government departments and PSUs. 

The Finance Minister was quoted as saying "We are separately announcing a voluntary vehicle scrapping policy to phase out old and unfit vehicles. This will help encourage fuel-efficient and environment-friendly vehicles thereby reducing vehicular pollution and oil import bills." The metal from scrapped old vehicles could be reused by automakers with the potential to bring down vehicle cost. The cost of manufacturing reduction will be passed on to the Indian consumers in the form of reduced prices for new models.

Only last month, India’s road transport and highways minister Nitin Gadkari announced a new proposal to enforce a green tax on a certain category of vehicles from 1 April 2022. As per the proposal, transport vehicles older than eight years would be charged a green tax at the rate of 10- 25 per cent. This would be charged when the owner goes for fitness certificate renewal. For personal vehicles, the tax will be levied after 15 years of use. This will be charged when the owner goes for a fitness renewal registration certificate. 

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