Editorials, GS-3, Science & Tech

Voluntary Vehicle Fleet Modernization Programme (V-VMP)

The road transport and highways minister, in May 2016, released the first draft of the proposed Voluntary Vehicle Fleet Modernization Programme (V-VMP).

  • The programme proposes to offer tax benefits and discounts to people who junk old vehicles and replace them with new ones. Its primary intention is to reduce emissions and the priority is to get old fuel-guzzling and polluting trucks off the roads.

What has happened now?

Finance ministry has raised objections over few provisions in the scheme. These include provisions related to:

  • Number of vehicles to be scrapped.
  • Excise duty exemption.
  • Infrastructure creation.
  • Investments

Why Finance Ministry is opposing?

The scheme takes 28 million vehicles off the road and according to the Finance Ministry it is difficult to provide exemptions or rebates to such a huge number of vehicle owners. Besides, it would also lead to a financial burden on the government.

What’s the issue now?

Road transport and highway minister Nitin Gadkari is all set to make another attempt to convince finance minister Arun Jaitley to approve the Voluntary Vehicle Fleet Modernization Programme (V-VMP) in its current form.

What is V-VMP?

It is a policy proposed by the Road Ministry aimed at pushing 28 million decade-old polluting vehicles off the road. The policy aims at incentivising people to retire their old vehicles that were bought before March 2005 or are below BS IV standards.

  • As per the proposed policy, vehicles bought prior to March 31, 2005 or those below BS IV emission standards would be eligible for incentives if those were scrapped and replaced by new ones.
  • A fair value for the scrap, excise duty at 50% of the normal rate on the new vehicle and special discounts from automobile manufacturers are on cards for those who participate.
  • The incentives are expected to reduce the cost of a new vehicle for a buyer on an average 8-12%.
  • The policy recommends complete excise exemption for state transport buses to encourage public transport to shift to newer and higher capacity buses which will also help decongest roads.

Why it is needed?

Analysis of segment and age of vehicles causing air pollution has shown that MHCVs (Medium & Heavy Commercial Vehicles) constitute just 2.5% of the total fleet but contribute to 60% of pollution.

Besides, the older vehicles, typically more than 10 years of age and pre-BS I compliant, constitute 15% of the total fleet but pollute 10-12 times more than a new vehicle because of drastic change in pollution norms.
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Incentives proposed:

Under V-VMP, the road ministry has proposed that vehicle owners scrapping their old vehicles will get monetary incentives to buy a new vehicle in three forms to aid adoption of this programme:

  1. Scrap value from old vehicle.
  2. Automobile manufacturers’ special discount.
  3. Partial excise duty exemption.

Other details:

  • The scheme will focus initially on incentivising buyers of new commercial vehicle and keep passenger vehicles out of its ambit. It also won’t cover two-wheelers in the first phase.
  • Given that commercial vehicles change hands two to three times during their lifecycle, the government is also working out ways to issue tradeable certificates which would incentivise the last owner to scrap the truck and subsidise the purchase of the primary buyer. This will create a win-win situation for all stakeholders and make the overall dynamics of commercial vehicle trade more vibrant.
  • Under the plan, those opting for V-VMP will have to deposit documents relating to the vehicle at the recycling centre. After verification, the owner will get a VVMP certificate and the price for the scrap. He has to provide the certificate to the dealer while buying the new vehicle to avail of the discount.
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Why it is a good scheme?

  • The scheme has the potential to reduce the vehicular emission by 25-30% and saving oil consumption by 3.2 billion liters per year. The reducing in oil consumption by new vehicles will help save nearly Rs 7,000 crore in oil import.
  • Implementation of the scheme for trucks and buses would result in 17% reduction in CO emissions, 18% reduction in HC+NOx emissions and 24% reduction in PM emissions.
  • Also, the policy would boost sales of automobile manufacturers leading to higher production capacity utilisation and the automobile manufacturers would support the government in this initiative “financially by giving special discounts to customers buying vehicles under this scheme”.
  • Besides reducing emissions, it generates steel scrap worth Rs. 11, 500 annually, reducing steel import burden.
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Way ahead:

Road Ministry will clarify before the Finance Ministry that in the first phase, the target would be just medium and heavy vehicles which are just 1.2 million as compared to finance ministry’s estimate of 28 million.

As far as revenue loss on excise duty is concerned, Road Ministry will try to convince Finance Ministry, stating that with the old vehicles running on road, the revenue loss would be more. If the new vehicles are purchased, at least there would be some additional revenue for the government.

Similar experiments in other countries:

A scheme known as Cash for clunkers has been implemented across the globe in countries like the UK, US, Germany, France and Spain, for limited periods during the global recession of 2009, in a bid to drive sales in the domestic auto industry. The government buys up some of the oldest, most polluting vehicles and scraps them.

  • In the US, cash for clunkers was introduced during the recession and was an attempt to stoke growth within the economy. the scheme was tailor made in such a way that it also incentivised the US consumer to shift away from gas guzzlers.
  • Under the UK car scrappage scheme, a £2,000 incentive was paid to motorists who scrap cars registered before 31 August 1999 to buy a new car. The government contributed £1,000 and the remaining amount came from the dealers and manufacturers.
  • China substituted an estimated 2.7 million high polluters from the national car fleet by offering rebates of $450 to $900 from June 2009 to May 2010 while Indonesia launched a scrappage scheme in 2009 paying owners of vehicles at least 10 years old MR5,000 ($1,354) was shared equally by the government and auto makers.

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