Vehicle scrappage incentive buzz gets stronger

If a committee set up under the heavy industries ministry approves a recommendation of the auto industry, the country may soon get a scheme, which would incentivise a vehicle buyer for scrapping his old vehicle in exchange.

Although the scheme is aimed at generating results similar to that seen in western countries, it is not essentially planned by the government to boost sales but is, rather, targeted at reducing harmful vehicle carbon emissions.

The scheme, if implemented, will therefore not be directly funded by the government, as was the case in many European countries and the US. But incentives in the form of duty cuts -- among other similar things, such as cuts in excise -- can be exercised to promote sales of new fuel-efficient vehicles.

The scrappage incentive scheme launched in the west, which was popularly referred to as 'cash for clunkers', turned out to be a huge hit among buyers, with the government doling out extra discounts to new car buyers in exchange for their old cars. This was done to lift sales.

Dilip Chenoy, director general, Society of Indian Automobile Manufacturers (Siam), said, "The ministry has set up an inter-ministerial group, which is essentially looking at the various studies we have submitted to them -- how the policy can be implemented, how to make sure that the same (scrapped) components do not make their way back into the market, who will take the vehicle for scrapping purpose and how would the scrapping take place, what should be the life of the vehicle, reducing the fuel consumption by at least 5 percent, etc. All these things will be discussed in detail."

"There is no direct cash outflow from the government. The way the scheme has been designed it's a win-win situation for all the parties involved. It is a very positive step towards working out a policy which benefits everyone," he added.

Although the scrappage incentive proposal was put forward by the automotive industry long ago, the government has only recently shown a keen interest in the issue, perhaps due to the realisation that there is absolutely no data, which can assess the amount of carbon emitted by vehicles per kilometre.

These data are readily available in western countries. In Europe it is mandatory for all vehicle makers to reveal the amount of carbon a model emits on a per-kilometer basis. India's apex vehicle testing body, the Automotive Research Association of India, is under no compulsion to reveal any data about carbon emissions at present.

A senior Siam executive, on condition of anonymity, said, "Vehicles which are older than 10-15 years can be scrapped, while a 50 percent cut in value added tax and a 50 percent cut in excise duty can be given to new vehicle buyers. This will improve emission standards and reduce fuel consumption at the same time."

Source added under the aegis of the Sharma committee, Siam had submitted a report to the ministry of road transport and highways, which made certain recommendations.

"It recommended a 25 percent reduction in CO2 emissions by 2015-20 from 2005 levels. But the bureau of energy efficiency proposed that the numbers should be in kilometres per litre. We would prefer the CO2 rule, as it will spell out an exact emission per vehicle. Let us see what stand the government takes on this after the Copenhagen summit. We should ideally follow the European regulation as we follow their norms," the executive added.

Vehicle makers welcome the move, saying it will create demand in the market. This demand will not be for the medium-term alone as, in addition to supporting environmental concerns, the discarded vehicles would not be allowed to renter the market, thereby creating a void.

Pawan Goenka, president (automotive sector), M&M, said, "This would not spike demand suddenly followed by a slowdown later. We are not proposing it as a one-time scheme."