At a scrapyard in Mayapuri, Delhi, Asia’s largest hub for second-hand auto parts, several Maruti 800s, Mahindra Jeeps, and Ambassadors are lined up next to each other. These relics of urbanisation await a grim fate. Metal will be beaten out of their bruised bodies.

What is salvaged—mostly scrap steel—will then be used in new vehicles, airplanes, and construction projects, among other things. You probably assume this endeavour is protecting the environment and helping the community. But is it really?

If there were Razzies for recycling, India would sweep the vehicle category. For starters, the local industry is run by a passel of dubious scrap dealers that fly under the regulatory radar. There are no clear rules on environment protocols or on how to dispose vehicles; technology is outdated, and recycling rates are abysmal. Vehicles are often scrapped in residential areas and the methods used are not just harmful to the environment but also to the workers exposed to fumes. It also leads to a huge waste of materials because the process is not efficient enough to even optimise recovery of common materials, leave aside finer ones such as rare earths. Private enterprise has, as a result, steered clear of the business.

That's why industry watchers welcomed vehicle recycling's first private sector entrant: scrap dealer Mahindra Intertrade. In August, the company, a part of the $17.8 billion (Rs 1.2 lakh crore) Mahindra Group, teamed up with state-owned scrap importer MSTC to set up India’s first automobile-shredding and recycling facility. So why does Mahindra want to enter this helter-skelter industry?

All of a sudden, millions of vehicles are nearing their disposal age, explains Anup Bandivadekar, programme director/India lead at the International Council on Clean Transportation. India’s automobile boom only began around 15 years ago, so until recently a relatively small number of cars needed scrapping. New environment protection measures will also send more cars to the scrap heap. The National Green Tribunal, for instance, recently asked authorities to impound and de-register diesel vehicles older than 10 years in the National Capital Region.

There is a wide runway for growth. The auto industry will likely clock double-digit growth as incomes rise, according to Nomura. Around 10 million vehicles will likely be available for recycling in 2016, assuming a 10-year life cycle, as per a KPMG analysis. By 2025, that number will rise to 18 million. “Looking at the availability of various kinds of scrap feed, it makes sense for us to get into this business,” Mahindra Intertrade’s managing director Sumit Issar tells Fortune India.

Another attraction is the growing market for scrap. India, the world’s second-largest importer of scrap steel behind Turkey, imports around 6 million tonnes a year. By 2020, imports are set to double. Mahindra wants to turn from importer to producer. “Each of our plants would produce about 150,000 tonnes of scrap. Given the number of sites we are looking at, India can at least have sufficient scrap availability in a couple of years,” says Issar, who doesn’t specify how many plants the company will build or how much it will spend.

For vehicle recycling to be effective, it needs to be tightly regulated. The European Union, which has introduced strict rules on how cars should be disposed of, is seen as a role model.

It has stipulated that cars manufactured from 2015 must be made of at least 85% recyclable materials and be up to 95% recoverable. The 85% refers to the amount of the recycled materials returned to the production process and a further 10% is used for conversion into usable heat, electricity, or fuel. There are deadlines for material recovery, too.

Automakers also have a role in this. They have to ensure that there is a recycling process in place for vehicles they get for scrapping. They can do it themselves, or outsource it, but they must meet a significant proportion of costs for collection and recovery measures. "In markets like Europe and Japan, manufacturers tie up with networks of certified recyclers who take the cars back at the end of their life. They also give the recyclers manuals on how to disassemble vehicles in a responsible manner,” says International Council on Clean Transportation’s Bandivadekar.

Shockingly, Indian automakers are still not required to take such responsibility. India doesn’t even have any legitimate recycling plant, aside from a solitary facility in Chennai set up five years ago.

To be certain, the potential benefits of vehicle recycling are immense. If sensibly handled, vehicle recycling helps reduce emissions, save costs, and create employment. The process of recycling metal uses about 74% less energy than making new steel, according to the U.S. Environmental Protection Agency. Recycled metal is also cheaper. Furthermore, nearly 90% of a vehicle can be recycled; the rest is shredded and buried in landfills. In India, however, only 70%-75% is recycled owing to inefficiencies. To align the industry with global standards, the government is working on a new policy, which will involve rebates for retiring old vehicles and provide details on the process of de-registration, which is essential for scrapping vehicles. It has taken steps to provide more clarity on vehicle recycling and could also assign manufacturers a role in the recycling process. These changes, which Mahindra’s Issar calls a “big plus” for the industry, are essential if the country wishes to boost its recycling rate. (Frost & Sullivan pegs the rate at a measly 25%, one of the lowest in the world.)

Recycling rates can only be improved with the technological knowhow private enterprise brings. Newer models often flummox local recyclers as they use composite plastic and electronic spare parts. Even if scrappers manage to dismantle the vehicle, they are unable to recover it efficiently, says Rachna Arora, senior technical advisor, Deutsche Gesellschaft für Internationale Zusammenarbeit (German Agency for International Cooperation).

India’s small vehicle recyclers need help. Says Shekar Viswanathan, vice chairman and whole-time director of Toyota Kirloskar Motor: “The unorganised sector does not have the wherewithal to scrap efficiently…[Corporates] can carry the informal sector in terms of giving them the requisite technology, tools, and mechanisms to efficiently dispose old vehicles.”

Arora says the private sector needs to provide training and manuals on how to dispose vehicles properly. “If you formalise [the small vehicle recyclers], legalise them, and make them more competitive, they can produce quality re-manufactured parts,” she says.

Mahindra’s entry may not be sufficient to dramatically change the situation, but it is a start. In the long run, only new policy and greater environmental sensitivity can attract more private capital to fill the lacuna.

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