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Green Tax or Green Burden? An Insight Into India’s Latest Vehicle Policies

The onset of 2021 has brought in what may be defined as “new hope” for the world. While in 2020 the entire globe grappled with the effects of the COVID-19 pandemic, nations all over the world have tried to uplift their economies. However, among this chaos, a new facet signifying the importance of the environment has emerged. As the entire world imposed numerous lockdowns, citizenry across the globe saw their neighborhoods move into pin-drop silences. Pollution levels all around the world dropped for a few months, picking the pace back up as the restrictions were lifted setting off volatile climate anomalies. Australia experienced some of the worst wildfires ever, flash floods in Iran, Jakarta, and Sulawesi wreaked havoc, and now Texas deep freeze has taken over the news.

The latest Global Climate Risk Index, 2021 by Germanwatch explicitly points out signs of heightening environmental change which can no longer be overlooked – on any landmass or in any locale. Effects from extraordinary climate disasters hit the least fortunate nations hardest as these are especially defenseless and have a relatively lower adapting limit. These nations require more opportunities to modify and recuperate their climate resilience systems. This being said high-income nations are also feeling environmental impacts unmistakably more than at any time in recent history. On the 2020 Environmental Performance Index, India ranks a disappointing 168 out of 180 countries on environmental health and ecosystem vitality. The low ranking highlights the environmental challenges India faces and the policy gaps that exist in the country’s current environmental goals and aspirations. To counter the growing negative effects of pollution, harmful emissions, deteriorating health India needs to rethink its sustainability efforts.

A Potential Step Towards Sustainability Efforts

With this context, India in the recent Budget 2021-22 has introduced a “Vehicle Scrappage Policy” as a part of their Health and Well Being subdivision, one of the six pillars introduced in the recent budget. The Vehicle Scrappage policy is aimed at eliminating personal and commercial vehicles which are more than 20 or 15 years old. Being introduced as a voluntary policy, the finance minister suggested that this would help in reducing vehicular pollution and encouraging a healthy environment.

What is the Vehicle Scrappage Policy?

The Vehicle Scrappage Policy is a new initiative by the Government of India, planned to be implemented in April 2022. It puts into action a “fitness test” in automated fitness centers on vehicles older than 20 years in case of personal vehicles and 15 years in case of commercial vehicles to determine if the said vehicle is fit to drive on roads or not. Reportedly, each fitness test may cost over Rs. 40,000 and would be valid for a maximum of five years, after which renewal would be required. Fully automated fitness test facilities will be set up under public-private partnership and the tests won’t allow scope for human intervention, making human fibbing impossible.

Upon failing the fitness test, a vehicle may be sent to scrap yards and the owners will be provided with monetary compensation or incentives to help them buy their next vehicle. Anyone found to be driving unfit vehicles would be subject to penalties and impounding of their vehicles.

Logic Behind the Scrappage Policy

According to the Ministry of Road Transport and Highways, this policy would cover a small percentage of over one crore light, medium, and heavy vehicles which cause an estimated 10-25 times more pollution than normal vehicles and Green House Gas emissions of over 15%. It would encourage fuel-efficient and eco-friendly vehicles and hence, reduce the oil import bills. The whopping cost and regularity of the fitness tests are aimed at dissuading the owners of owning such vehicles which are old. This policy is also aimed at stimulating investment and jobs in the Indian automobile sector by increasing the demand of vehicles post the COVID-19 pandemic slowdown. The phasing out of old vehicles will most significantly impact India’s bid to become a more sustainable, pollution-free country. The recycling of steel may also provide a boost to other automotive parts industries and reduce the cost of imports substantially.

A Distinct Policy or a Duplicate Policy?

Many countries around the world like Germany, Japan, and the UK have implemented scrappage policies on similar lines. In Germany, car owners are incentivized with over $3000 for letting go of a car older than nine years. Japan and the UK also rolled out such policies for trading cars as old as thirteen and ten years to get discounts and incentives on their new vehicle purchases. However, a noteworthy point here is that all the countries had given a substantial amount of funding for their scrappage policies especially as compensation to the people, something which is still unclear in the Indian version of this policy.

“Green Tax”: Another Endeavour at Environment Protection?

To top off the scrappage policy, the Ministry of Road Transport and Highways in January 2021 declared the imposition of a “Green Tax” on older vehicles to reduce polluting vehicles. Mr. Nitin Gadkari the Union Minister for Road Transport and highways proposed a rough layout of a future green tax. Transport vehicles and personal vehicles being older than eight and fifteen years respectively will be levied with a green tax which may be at the rate of 10 to 25 % of road tax. The tax levied will be as high as 50 % of road tax in highly polluted cities like Delhi. Public vehicles will be charged a lower green tax and depending on the fuel type of all vehicles differential tax will also be implemented. The only exemptions from the said green tax are strong hybrid vehicles, vehicles operating on electricity/CNG/LPG/ethanol, and vehicles used in farming. Another key feature of this Green Tax policy is that all the revenue generated by levy of green tax would be used for preventing pollution in the country and allowing states to set up facilities for emission monitoring.

The combination of both the policies suggestively might bring out the concept of “Polluters Pay Principle” declared as principle sixteen in the 1992 Rio Declaration also known as the Earth Summit. This principle holds that whosoever produces pollution should bear the costs of it. These policies combined could be used as a tool to combat health issues related to vehicular pollution and reduce harmful pollutants like particulate matter, carbon monoxide, and nitrogen oxides responsible for numerous cardiovascular diseases and increased mortality.

An Actual Policy Implementation or a Failed Policy Attempt?

While both the scrappage and green tax policy shine a glimmer of hope in eyes of the automobile sector and the environment enthusiasts alike the real question is whether the implementation of the said policies will be successful or not. As of now no official details besides a press release and a mere mention of the scrappage policy have been made in the budget.

With the current upsurge in petrol prices all over India to as much as Rs. 100 per liter the people are already looking for some relief. On top of that implementation of green tax on old vehicles might cause a spike in the cost of public transportation and most definitely a spike in the tax rates imposed on people inflicting an extra burden on the general public. While the said policies might have good intentions, their implementation needs to be thought out and the public needs to be kept in the loop for the same. As we wait for further details on these strategies, we can only hope they do not turn out futile.


By - Asmita Jain


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