Car scrap dealers in Bengaluru are bracing for the impact of the Registered Vehicle Scrapping Facility (RVSF), which is expected to change the face of a business that is a huge part of the unorganised sector.
The RVSF coming up in Bengaluru is the project of CERO, a joint venture of Mahindra Accelo and government-owned MSTC Limited. Once it’s operational, it is expected to attract vehicle owners who want to dispose of their end-of-life vehicle and an eco-friendly process to scrap it.
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Now, end-of-life vehicles can be handed over to a scrap dealer in the unorganised sector. But it involves the risk of misuse of the vehicle. RVSFs are expected to eliminate this risk.
Who needs to scrap a vehicle
While the government has announced that its vehicles will be scrapped after 15 years, scrapping a personal vehicle is voluntary.
Personal vehicles can be used as long as they are fit to ply. But if, at any point, it fails a fitness test at a government-authorised Automated Testing Station, it’ll have to be scrapped at an RVSF.
The same applies to commercial vehicles. The only significant difference is that commercial vehicles have to clear a fitness test every year to renew their registration. Being under such intense scrutiny, they have to be fit to ply at all times or risk being scrapped. All such vehicles will have to be scrapped at RVSFs.
C. Mallikarjuna, Additional Commissioner for Transport, Karnataka, says, “Individuals can hand over end-of-life vehicles to RVSFs, which will be authorised to apply to the RTO for de-registration. If the RTO does not respond within seven days, the application is deemed to be accepted. The RVSF can proceed with scrapping the vehicle.”
The RVSF will hand over a Certificate of Deposit (CoD) to certify that you have handed over your end-of-life vehicle for scrapping, followed by a Certificate of Vehicle Scrapping (CVS) to certify that your vehicle has been scrapped as per government norms and in an eco-friendly process.
Plus, the government is offering incentives for each CoD. The incentives vary with each State government. Karnataka is offering a discount on the road tax for a new vehicle. The discount equals 25% of the road tax paid for the scrapped vehicle.
If you do not intend to purchase a new vehicle, you can trade your CoD with someone who wants to.
Local scrap dealer versus RVSF
As of now, your local scrap dealer has a cost advantage over an RVSF. Scrap dealers have been around ever since motor vehicles have been plying on roads. Hence, their overheads will be lower than RVSFs, which have to account for the recovery of capital invested and the cost of scrapping a vehicle in an eco-friendly process as per government norms.
Aniket Bag, the founder of vehicle scrap dealer aggregator Scrapoto, says, “The local scrap dealer is likely to offer around 20% more for your end-of-life vehicle as compared to an RVSF.”
But, the 20% advantage comes with the risk of misuse of your vehicle and lack of clarity on how the vehicle is scrapped and how the oil, grease, glass and plastic are disposed of.
Besides, the 25% discount on road tax paid for the scrapped vehicle is expected to compensate for the 20% difference in price offered by the local scrap dealer and an RVSF in Karnataka.
RVSFs of the big automobile companies are expected to change the profile of the vehicle scrapping business by bringing in a professional touch to the process.
Sumit Issar, Managing Director, Mahindra Accelo, says, “Our team will guide you from the moment you decide to scrap your end-of-life vehicle. At the end of the process, you will have a CoD, your vehicle will be de-registered from the RTO, and you will have a CVS. Plus, complete peace of mind.”
Karnataka is expected to get three RVSFs – one each in Bengaluru, Korategere near Tumakuru, and Koppal – in the near future.
As more RVSFs become operational across India, offering vehicle owners a government-authorised option to scrap their end-of-life vehicles, vehicle scrap dealers in the unorganised sector are expected to take a hit on their business.
Since there is no compulsion to scrap personal vehicles as long as they pass a fitness test at an Automated Testing Station, RVSFs are likely to depend on end-of-life vehicles of the government largely.
Size of business
Presenting the Union Budget of 2023-34, Finance Minister Nirmala Sitaraman announced that the government would scrap vehicles over 15 years at RVSFs. Union Transport Minister Nitin Gadkari estimated that the number of government vehicles to be scrapped across India is approximately 9 lakh.
Hence, the new RVSFs are expected to get off to a good start. Building on this foundation, their business is expected to get better over time.
A car scrap dealer in Shivajinagar says, “These big RVSFs will hurt our business. As of now, we do not know the extent, but our livelihood will definitely be impacted. Why will vehicle owners come to us if they are being promised peace of mind elsewhere?”
Shoaib Ahmed, Secretary of Stephen Square Merchants’ Association, which represents car scrap dealers in Shivajinagar, Bengaluru, says, “If the government had taken us into confidence while rolling out the vehicle scrapping policy and ensured our participation, we would have done so whole-heartedly. We have been in this business for over 100 years. In Bengaluru, around 7,000 persons are engaged in just the car scrapping eco-system. Then we have the scrapping of large vehicles, which is a separate ecosystem. Thousands of families depend on this business. We started with scrap from horse-drawn carriages and are now dealing with electric vehicles. We know this business in and out. We maintain all relevant documents of the vehicles that we handle, which we share with the authorities concerned. We would have loved to set up RVSFs. Instead, the government seems to have gone with big companies.”
Of the 64 approvals for RVSFs across India, 34 are operational. The large players are CERO of Mahindra Accelo-MSTC, Maruti-Toyota consortium, and Tata Motors.
Mahindra Group has the maximum units (nine), of which not all are operational. Maruti-Toyota and Tata Motors have one operational unit each. These three companies have plans to set up RVSFs across India but are yet to actually do so.
Even if all their approved RVSFs are operational, the total does not exceed 11, which still leaves 23 RVSFs of smaller entrepreneurs.
Need for land and capital
Mr. Mallikarjuna says, “Since the new vehicle scrapping was introduced in 2021, the government has reduced the requirements to set up an RVSF. We want maximum participation. Anyone can check the requirements online and apply online. Each application will be addressed in 60 days.”
Shoaib Ahmed says, “Many of our members are keen on transitioning to the organised sector. This is indeed a big opportunity for us. But, we are facing two hurdles – land and capital. An RVSF requires at least 2 acres. Where can we get so much land in Shivajinagar? Or, even in Bengaluru, for an RVSF to be financially viable?”
“Even if we get the land, the size of our operations is too small to raise the necessary capital simultaneously. Hence, we are hoping for assistance from the government of Karnataka. If the State government can give us land, we will try to raise the capital. If the government helps us become a part of the organised sector, our contribution to the State exchequer – in the form of GST and other taxes – will go up.”
Scrap dealers’ advantages
The experience and business know-how of the unorganised car scrap dealership network sector are not without takers.
CERO is focused entirely on setting up their operations and getting it right. But, the team is aware of the potential of the unorganised sector that has been operating in this business for decades and has a well-oiled network of people who handle a scrap of all kinds.
Sumit Issar, Managing Director, Mahindra Accelo, says, “We plan to have several RVSFs across India in the coming years. Karnataka alone might have four. Collaborating with existing vehicle scrapping dealers is one way to execute our plan.”
Another person who is trying to tap their network is Scrapoto founder Aniket Bag. “I started Scrapoto as a vehicle scrap dealer aggregator to address some of the pain points of people who wanted to scrap their vehicles. RVSF is a natural progression for Scrapoto. In terms of organic growth for Scrapoto, the existing scrap dealers are the most natural partners for an RVSF. I have approached them with a proposal for collaboration.”
Shoaib Ahmed says, “Scrapoto founder Aniket Bag had approached us with a proposal to set up an RVSF jointly. Our members are debating this option. We have not accepted his proposal, but we have not rejected the possibility either.”
But they may have to decide soon. It’s a number game, and right now, the game is stacked against existing vehicle scrap dealers. Over time, with steady business from government vehicles, the RVSFs would have recovered their capital investment and would be incurring only operating expenses. By that time, existing scrap dealers would have lost their 20% advantage.
What the future would look like
If existing vehicle scrap dealers want a glimpse of what the future will look like, they ought to look at what is happening in Delhi, which has the maximum number of vehicles for any city in India. Traffic gridlocks and pollution from vehicles are a part of life for residents in many parts of Delhi.
With the government unable to put curbs on either the number of vehicles or pollution levels, the National Green Tribunal has had to intervene. The government was ordered not to allow diesel vehicles older than 10 years old and petrol vehicles older than 15 years to ply on the roads of Delhi.
As a workaround, owners of such vehicles sell them to people in other parts of India. However, over time, it is possible that other States will stop registering such vehicles.
At that point, all end-of-life vehicles will have to be scrapped in RVSFs. The new RVSFs coming up in Karnataka could be the trigger for a transformation either in the existing vehicle scrapping business (if they opt to improve their processes) or in the profile of Shivajinagar (if they opt to exit the business).