Govt mulls Indian version of cash for clunkers scheme

Written by Yogima Seth | Praveen Kumar Singh | Praveen Kumar Singh | New Delhi | Updated: Aug 8 2009, 06:26am hrs
Taking a cue from the US and European Union, India too may come out with its own version of the cash for clunkers programme. In what could be a boost for automakers and a delight for green activists, the government is considering a scrappage policy for old vehicles, as suggested by the Society of Indian Automobile Manufacturers (Siam), the auto industry body.

The Indian scrappage policy would, however, be different from the US and European Union schemes, which basically provide cash into the hands of the consumers. For instance, the US offers vouchers of $3,500 and $4,500 for each car that is scrapped for a new, fuel-efficient vehicle, under the hugely successful car allowance rebate system (CARS), dubbed the cash for clunkers plan. In fact, the US Senate has approved $2 billion more for the CARS on Thursday after initial funds of $1 billion ran out in 10 days flat.

The scrappage scheme in the UK, introduced in April this year, give owners of cars of more than 10 years old a discount of 2,000 pounds in exchange for cleaner, new models. In January, the Germany had announced 2,500 euros under the scrappage policy and this led to a 30% jump in car sales in March. France and Spain, too, have similar programmes. Indian exporters like Hyundai and Maruti Suzuki have benefitted in these markets from the schemes.

The Indian auto sector certainly needs a concrete scrappage policy and we are considering the Siam proposal, though nothing concrete has been fixed as yet, an official in the ministry of heavy industry & public enterprises told FE.

Siam has suggested a fixed 50% rebate in excise duty and sales tax for different types of vehicles at the Centre and state level. It has also proposed for a waiver of registration charges, which could be 16-17% of the vehicle cost as incentives for people to scrap their 15-year-old private vehicles and 10-year-old commercial vehicles.

For instance, if a person exchanges his 15-year car with a new compact car, he would be entitled to 50% rebate on excise duty, which is 8% for small cars and another 50% on VAT, which is 12.5%.

Similarly, there could be savings on the registration charges, which is 2% of the ex-showroom price for smaller cars and 4% for big cars, in Delhi. This translates into a total rebate of 12.25% or a saving of Rs 36,750 on a car worth Rs 3,00,000.

This could act as a major incentive for taxi operators, transporters and corporates to go in for newer and less polluting vehicles.

The scrappage policy, if gets implemented, would be revenue positive for the government despite the concessions doled out. Considering that there is a 50% across-the-board concession in excise duty and sales tax, as an incentive, the government will still earn the remaining 50% income generated from the sales of new vehicles, says Sugato Sen, senior director, Siam. According to an analysis by Siam, while there are 3,45,477 commercial vehicles that needs to be scrapped, another 30,96,860 private vehicles have reached the cut-off point of 15 years and hence needs to be scrapped.

Given the profile of vehicle population in India, Siam feels that it would be apt for the first phase of a scheme to focus on the seven principal cities namely, Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad and Ahmedabad and later extend it to all other cities across India over a 3-5-year time-frame.