Mumbai: The centre will introduce a steel scrap policy this year which, in conjunction with the much-awaited vehicle scrappage policy, will lay out the rules and regulations for using scrap from old vehicles to produce steel.

This policy will be out by this December, Aruna Sharma, secretary, ministry of steel, told Mint on the sidelines of an industry event.

Earlier this month, Mahindra MSTC Recycling, a joint venture between state-run metal scrap trading firm MSTC and Mahindra Intertrade Ltd, started pilot runs for dismantling and selling scrap from old commercial vehicles in Greater Noida.

“Four more such centres are in the pipeline, and three of these will be run completely by the private sector," Sharma said, declining to give any more details.

“We have been waiting for the transport department to come out with its policy on the end-of-life of commercial vehicles. The steel scrap policy will be based on this," Sharma said.

“Once this policy is in place, India will start producing steel from scrap. For a steel producer, it doesn’t make a difference whether you make steel from iron ore or scrap. The National Steel Policy’s target of 300 million tonnes (mt) of steel production by 2030-31 includes steel made from both iron ore and scrap."

The draft scrappage policy for vehicles allows benefits for vehicles, which are older than 20 years. The scheme will now come in effect from 1 April 2020, coinciding with the implementation of the BS-VI fuel norms.

According to the steel ministry’s 2018 annual report, the Indian steel industry imported 5.7 million tonnes (mt) of scrap in 2016-17.

The scrap policy will reduce dependence on imports, Sharma said. “The policy will cover rules regarding aggregating scrap and the value that will be paid for scrap; how dismantling of vehicles should happen. “Scrap aggregated from vehicles, used white goods or electronics should not be mixed," she said.

“The scrap should be shredded and then converted into bales and sold to steel manufacturers," she added.

These scrap units will be set up either by the private sector or as public-private partnerships, Sharma added, because the business proposition for scrap makes it attractive to the private sector.

According to estimates by the ministry, Sharma said, it would cost a private unit about Rs5 crore to set up a disaggregating unit. A shredder—which involves an outlay of Rs15 crore—can be used by four such individual units.

Vishnu Mathur, director-general, Society of Indian Automobile Manufacturers (SIAM), believes the policy should be driven by incentives, and not regulations.

“SIAM fully supports the scrappage policy. The industry has been seeking a policy for many years. As emission norms for vehicles get tighter, the real benefits only come in when you phase out the older, more polluting vehicles," said Mathur.

“Local scrap reduces dependence on imports for secondary steel plants in India. We obviously don’t want scrappage to come in an unorganized manner. If there is a policy on this, then it becomes a good business proposition because nowhere in the world are scrappage units run by the government," Sharma said.