Vehicle recycling centers await clarity on scrappage policy

Developing organized vehicle recycling centers to better manage waste generated through the deluge of discarded vehicles that India will soon witness, is the need of the hour

Jul 03, 2020 YUGA CHAUDHARI DALVI 1 Comment Like
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MUMBAI :

By 2025, the number of end-of-life vehicles (ELVs) is expected to increase by a whopping 250 percent and is touted to be over 21.8 million from 8.7 million ELVs that were reported in 2015. Despite a constant rise in these numbers, India, currently lacks presence of formal vehicle recycling centers, and continues to be completely dependent on smaller, semi-formal units that are known to deploy unhealthy methods of dismantling and recycling of vehicles. As the number of ELVs is expected to increase significantly, the industry is awaiting clarity on various aspects of India’s long-pending vehicle scrapping policy, which will pave the way for organized vehicle recycling centers. TURN OF SPEED spoke with industry experts for more clarity on the existing scenario and the need for a policy for successful implementation of scrapping centers in India. 

ELVs refer to those vehicles that have come to the end-of-life due to wear and tear or due to unnatural reasons such as accident, fire, flood or vandalism. Once damaged, most ELVs end up in a scrap yard/informal recycling center, which have been around for decades, across various metros and towns in India. According to a report released by Automotive Recyclers Association in 2012, “more than 1,00,000 family units are involved in ELV dismantling in India. These units were originally formed around the outskirts of major towns, but have now been integrated into highly densely populated areas as a result of the explosive expansion of urban cities in India.” The report further points out that the existing recycling centers in India have been largely responsible for releasing toxic compounds both, into the air and into ground water since majority of these units do not comply with any environmental norms.  

Dismantling and recycling are some of the key aspects of ELV management. Explaining the details of the ELV management, a report published by the Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH and Chintan Environmental Research Action Group (A Delhi based NGO) noted that ELVs contain hazardous substances such as waste oil, lubricants, lead acid batteries, lamps, electronic components, air bags, etc. The recovery of such materials is often harmful to the health of the scrap recovery workers; and cause environmental contamination if incorrectly dismantled or disposed. For example, brake shoe clutch plates of a disposed vehicle contains asbestos that is carcinogenic and hazardous to human health. The other aspect of disposal of ELVs is the recovery and recycling of metals and other materials. If salvaged or recycled properly, such materials can be effectively fed back into the economy, reducing the overall environmental impact relating to usage of natural resources. 

Industry experts feel that despite India being one of the largest markets for manufacturing and sale of automobiles, it lacks stringent regulation relating to scrapping of old and environmentally hazardous vehicles and its recycling. It is perceived as a laggard in comparison to other developed nations that have been forthcoming in implementing measures in this space. For example, in Europe, manufacturers are responsible for increasing recyclability of vehicles, disseminating information on recycling procedures and providing free take-back of ELVs. Similarly, in Japan, vehicle manufacturers and importers are mandated to take back and recycle air bags and other such components, while in countries such as Korea and Taiwan, dismantling and recycling of ELVs are done by authorized facilities.

Considering the health and environment concerns surrounding scrapping of old vehicles, the Ministry of Road Transport & Highways (MoRTH) proposed India’s first Vehicle Scrapping Policy, which also encompasses guidelines for building environmentally sound recycling facilities in the country. However, the draft voluntary vehicle scrappage policy, which was reportedly first proposed in 2016 by the Ministry, has been facing various hurdles, thereby leading to a delay in its implementation. The policy continues to be in discussion, and is currently awaiting a clearance from the Union Cabinet. The objective behind designing this policy was to enable automobile recycling to become an organized sector activity and to prescribe minimal operational standards in-line with the European Directives of 2000 and 2005.

The automakers in India are keenly awaiting the go-ahead of this policy as it is perceived to be a necessary regulation not only for the benefit of the environment but also for lifting the ailing automobile industry. In order to address the ongoing slowdown in the sector, India’s Minister of Finance, Niramala Sitharaman, in August 2019 identified scrappage policy as one of the key measures for reviving the industry. While the policy has been in discussion for over two years, the contours of the policy are still unclear, especially the ones related to providing monitory benefits to the owners of ELVs. According to certain media reports, the initial draft proposal failed to receive a go-ahead from the Ministry of Finance wherein they cited issues relating to revenue loss to the exchequer, arising out of monitory benefits provided to the consumers willing to discard ELVs.  

According to Shekar Vishwanathan, Vice Chairman of Toyota Kirloskar Motor, the successful establishment of formal vehicle recycling centers is only possible with strong support from the government. “It is in the government’s interest to get these cars off the road. The industry has been in discussion with the government extensively regarding this. Every time a customer comes to a recycling center, he should be allowed to get a value of the car he is selling along with a scrappage certificate, redeemable at any dealer outlet. The dealer can then claim this amount from the government as well from the issuer of the certificate. This way, the manufacturer, the government, and the customer get benefitted and the net result is a win-win where we replace old polluting cars, with newer non-polluting or less polluting vehicles,” he says. 

“Ultimately this policy needs to be implemented in the interest of public safety and health. The only question is in what form will it come and how much will be the pain that will be shared by the consumer, the manufacturer, and the government,” says Vishwanathan. 

Sharing similar sentiment, Puneet Gupta, Associate Director, Indian Automotive Market, IHS Markit says, “The timely implementation of this policy will help in reviving the sales of the automotive industry, especially in the current scenario when the sector is witnessing the worst slowdown. Such measures will benefit all stakeholders, including government, manufacturers and the consumers.” According to Gupta the implementation of this policy should happen in a phased manner, starting with metros followed by Tier II and Tier III cities.    

Stressing on the urgency of implementing regulatory measures, Gupta says that governments world over have announced financial packages to boost the automotive sector in the wake of the COVID-19 pandemic. Citing the example of France, Gupta says, “Recently France announced a revival plan for the country’s auto industry. The plan is expected to include incentives for people to scrap their old vehicles to buy a lower-emission model such as an electric vehicle.” Gupta feels, “Similar measures can be implemented in India via the scrappage policy. This will not only help in reviving sales of the auto industry but will also aid the sale of electric vehicles.” 

Experts also believe that implementation of a scrappage policy can be a major challenge for the government given the involvement and possible impact on multiple stakeholders. “The delay is due to too many stakeholders, each expecting the other to take the initiative,” says Captain N S Mohan Ram (Retd), an auto Industry veteran and former President, TVS Motor Company. He has also authored the book, Recycling End of Life Vehicles - With special focus on India and Developing Nations. Sharing similar sentiment, Vishwanathan adds, “It [policy implementation] is actually a very complex interplay of various factors such as public health, public finance, buoyancy of the auto industry, and consumer interest. Hence, the delay in getting an approval for the policy.” 

A report published in The Economic Times (when) estimated that the total size of the overall recycling of ELVs in the India is expected to be in the range of USD 6 billion, making it a lucrative opportunity for organized players to enter this segment. The largely untouched market has caught the attention of some of the big names in the industry, including Mahindra and Mahindra and Maruti Suzuki India Limited. One of the first entrants into this sector is Mahindra and Mahindra Group, which announced a joint venture through its entity Mahindra Accelo with MSTC Ltd. (A Government of India Enterprise) to establish Cero, claiming to be India’s first organized auto shredding venture and vehicle recycling unit. Another major announcement in this space came from Maruti Suzuki India and Toyota Tsusho Group. The two entities announced a joint venture under the entity named Maruti Suzuki Toyotsu India Pvt Ltd (MSTI), for setting up of a vehicle dismantling and recycling plant. The company plans to establish this plant in Noida by 2020-21, with an initial capacity to dismantle 2,000 vehicles per month. 

Not just the big players, some of the smaller companies are also exploring opportunities in the ELV recycling segment. Ludhiana-based, B Lal Steel Shredding, is one such company, which has established a plant in the city with an approximate investment of Rs 45 crore. However, with the absence of the scrappage policy and expected consumer benefits, the company does not have enough vehicles to fully operationalize the plant. Rakesh Jindal, Director of B Lal Steel Shredding says, “Incentive-based policy will help in encouraging players like us to enter the recycling business.”  

While various companies have announced their plans, they keenly await clarity on the upcoming scrappage policy. “I clearly see more organized players entering this segment. Toyota is a veteran in such applications. We are an established player in Japan and have the capabilities to bring in industry best-practices in the recycling space. However, it is in the best commercial interest of the companies to first study what the policy has to offer and then depending on that it may be worth investing in this space,” says Vishwanathan. 

Mohan Ram adds, “The existing small units are based in residential areas such as Mayapuri in Delhi and Pudhupet in Chennai. They have no space for proper de-pollution and recycling and are small scale. The Government is reluctant to force them to upgrade or move outside the cities. Further, there is some reluctance for large industries to set up facilities due to pending rules and restrictions on small units.  However, this is changing slowly. I expect quite a few units to come up in the next year or two. The situation is changing for the better.”   

 


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The quote, "Vehicle recycling centers await clarity on scrappage policy," implies that the recycling centers are in the dark regarding the government's policy regarding the scrappage of vehicles. This could mean that details such as the eligible vehicles, incentives, and the procedure for participating haven't been completely established yet. Until there is a better understanding of the policy, vehicle recycling centers may be uncertain about how it will impact their business. https://cashcashcars.com/areas-served/junk-car-removals-los-angeles-ca/