The flip side of ban on aging vehicles: It is regulatory destruction of economic value | OPINION

By Dr. Jaijit Bhattacharya

My previous two articles in this column, in a four-part series, focused on how regulations can, and are leading to significant value creation in the economy. However, there are also regulations that destroy very significant economic value. These are not necessarily regulations by the executive, but regulations that have come out due to the judiciary.

Specifically, if one looks at the Supreme Court order on October 29, 2018 that prohibited the plying of 15-year-old petrol and 10-year-old diesel vehicles in the national capital region and directed the transport department to announce such vehicles to be impounded if found plying, it is leading to a humungous destruction of property and economic value.

Let us start by evaluating the impact of the regulatory change brought in by judicial intervention. Approximately 3 lakh two-wheelers will get scrapped annually and about 1 lakh four-wheelers will get scrapped annually.

Taking a conservative residual value of two-wheelers to be Rs 10,000 on average, and residual value of four-wheelers to be Rs 2 lakh on an average, that is a value destruction of a whopping Rs 2,300 crores annually. What are we getting in return?

We are supposed to get (a) cleaner air, (b) more demand for vehicles and hence more jobs, (c) creation of a vibrant scrappage industry and hence more jobs and (d) creation of an electric vehicles retrofitting industry.

Are these really the benefits that we will get? Let us look at each one of them more closely.

This is exactly the regulation that the central government has brought in, which focuses on the fitness of the vehicle than merely the age. The orders to scrap vehicles based on age appear to be more driven towards creating a market. But at whose cost?

Do the courts have the right to snatch away property from people based on such flimsy arguments of pollution based on age of a vehicle?

What is a pensioner expected to do when she bought what she thought was the last vehicle that would be hers for the rest of her life?

Where is she expected to get the money to buy another vehicle?

When she had bought the vehicle, the “contract” with the government was that she can drive the vehicle till it is fit to drive. It was not based on the age of the vehicle.

Why are the courts and the state government now suddenly snatching away that vehicle in the name of pollution when clearly one can have emissions as a norm for scrapping cars and not age?

In fact, around the world, age has rarely ever been used as a criterion to scrap vehicles. In fact, most vehicle scrappage policies are driven by incentives and not by fiat. By forcing the scrappage of vehicles by age, the courts are snatching away property from citizens.

In fact, the Constitution originally provided for the right to property under Articles 19 and 31. Article 19 guaranteed to all citizens the right to acquire, hold and dispose of property.

Article 31 provided that “no person shall be deprived of his property save by authority of law”.

It was also provided that compensation would be paid to a person whose property has been taken for public purposes, and that is how the USA had designed its own vehicle scrappage policy.

Unfortunately, the provisions relating to the right to property were changed. The 44th Amendment of 1978 removed the right to property from the list of fundamental rights. A new provision, Article 300-A, was added to the constitution, which provided that “no person shall be deprived of his property save by authority of law”.

The Supreme Court itself had sent notice to the government questioning why the right to property should not be brought back. And, now we see the apex court itself taking away property from citizens in a manner that begs to have more rationale.

If age was a criterion for taking away property, imagine if the courts now decide that all houses that are over 30 years of age should now be demolished and rebuilt as it has been found that a few houses above the age of 30 years have collapsed.

It would obviously lead to a massive demolition industry, lead to new buildings being created, and many jobs getting created. But is that the right thing to do? At whose cost would these industries and jobs get created?

Such actions happen in countries like China. Not in a democratic country like India. With pollution as an excuse, massive value destruction is happening.

Let us look the second projected benefit of more demand for vehicles and hence more jobs. Does everyone really have that kind of disposable money to be able to buy new vehicles at a drop of a hat?

With rising expenses and rising cost of medical care, buying new vehicles will really not be top priority. And, is it even morally right to first snatch away someone’s vehicle so that that the person is then forced to buy another vehicle?

Then we should also pass a regulation to demolish all houses above the age of 30 years as people would then buy new houses and grow the economy. The argument is obviously bordering the ludicrous.

Similarly, if we look at the third and fourth benefits of creating a scrappage industry and creation of electric retrofitting industry, both arguments are perverse as we are creating these industries by taking away someone’s hard earned property.

One has not witnessed such large-scale destruction of economic value through regulations in the recent past. Unfortunately, since the orders supposedly lead to a larger market for the automobile giants, it is a losing battle for the weak middle-class to be able to challenge the order.

The middle-class cannot do dharnas and choke arterial roads and highways. They have to get up in the morning and go for their jobs and keep the economic engine running and mutely submit themselves to the regulatory burdens. And thus, yet again it is the middle-class that will be at the receiving end of a regulatory intervention that helps large companies rather than protecting the vulnerable.

This article first appeared in India Today,