The emergence of vehicle scrapping facilities is transforming India”s automotive industry. The government has approved 72 registered vehicle scrapping facilities (RVSFs) across 16 states and Union Territories, with major car manufacturers like Maruti Suzuki, Tata Motors, and Mahindra and Mahindra setting up their scrapping facilities.

These facilities are like “car cemeteries,” where old vehicles undergo a relatively short but highly efficient process. The scrapping process involves removing tires, pre-treatment to segregate oils and remove various vehicle components, recycling precious metals such as platinum, rhodium, and palladium from catalytic converters, and compressing the remaining steel shell for reuse.

The government introduced the voluntary vehicle-fleet modernisation program, known as the vehicle scrapping policy, two years ago. This policy encourages vehicle owners to scrap old vehicles, boosting demand for new ones and creating a surge in sales. Additionally, the policy is expected to drive up demand for used cars, especially 7-9-year-old vehicles in tier-2 cities and rural areas, potentially increasing prices by 2-3%. The commercial vehicle sector is also anticipated to benefit, with older vehicles getting scrapped, leading to higher demand for used commercial vehicles and formalising the unorganised market.

The objectives of the scrappage policy include promoting safer vehicles, boosting automobile manufacturing, and scrapping industries, enhancing road safety, making raw materials available for industries, reducing the oil import bill and pollution, and generating employment.

To incentivise scrapping, the government offers vehicle owners concessions of up to 25% on motor vehicle tax when buying a new car if the old car is scrapped in a registered facility. So far, 15 states and Union Territories have announced such concessions. As a result, the number of certificates of deposit issued for scrapped vehicles has been increasing.

While India”s informal sector has traditionally dominated vehicle scrapping, the organised sector is growing. With the policy in place, established auto players are entering the scrapping business, and more scrapping facilities are being established. However, organised players must develop strategies to compete with unorganised operators, such as those in Mayapuri and Meerut, who offer higher payments for vehicles with usable parts.

Despite the expected growth in the number of unfit vehicles in India, it”s important to ensure that these vehicles are safely disposed of in government-approved scrapping facilities to prevent environmental hazards. The government needs to reconsider incentive policies to encourage vehicle owners to use registered scrapping facilities, thereby ensuring the environmentally responsible disposal of old vehicles.