Home / Industry / Manufacturing /  Auto firms want govt to replicate cash-for-clunkers scheme in India

New Delhi: Two years after it was first mooted, and with auto sales continuing to slow, India’s auto lobby is still hoping for a so-called voluntary vehicle scrappage scheme that will generate demand in a market buffeted by high fuel prices, rising inflation, and slowing economic growth.

In late October, the industry lobby Society of Indian Automobile Manufacturers (Siam) made a presentation on the kind of scheme it would like to see to the Parliamentary Standing Committee on industry headed by Janata Dal (United) MP K.C. Tyagi.

Mint has reviewed a copy of the presentation according to which customers will receive concessions of up to 1 lakh in taxes if they sell vehicles older than 15 years. The first stage of the scheme, the presentation said, should cover India’s eight largest cities, and could see as many as 8.9 million passenger vehicles and 1.47 million commercial vehicles being scrapped. To put those numbers in context, India saw sales of 3.15 million passenger vehicles, 16.1 million two-wheelers, and 920,000 trucks and buses in the first 11 months of this fiscal year.

The industry’s pitch to the government: doing this will generate 31,332 crore of revenue for the government through taxes in these eight cities alone.

To be sure, the proposal remains just that (apart from being on top of the wishlist of auto companies). When contacted, Tyagi said he will not be able to offer his comments immediately.

Similar schemes have been rolled out in the past by the governments of the US, Japan, and Europe. Most such schemes operate for a limited period, and are aimed to boost sales of newer, more fuel efficient cars.

“Old vehicles could be retired through a single window fleet modernization programme. This will help mitigate deteriorating air quality, higher consumption of fuel and it will create some business for us (industry) as well," Vishnu Mathur, director general of Siam, said in a phone interview.

The scheme seems to have acquired a new lease of life after minister for heavy industries Praful Patel said in a September speech at Siam’s annual convention that “there is a genuine case for stimulus for the auto industry" and added that he would request the Prime Minister and the finance ministry for a “reduction in excise duty and introduction of scrappage policy for ageing vehicles to incentivize new vehicle purchase".

Given the financial implications of the scheme—it entails a discount on taxes for people scrapping old vehicles, but the expectation is that this loss to the exchequer will be more than offset by buyers who would have otherwise not bought new vehicles—the finance ministry will have to sign off on it.

Mint learns that the ministry of heavy industry will include the proposal in the budget recommendations that it will send to the finance ministry. To be sure, with elections due in 2014, it is unlikely that the Union Budget will be presented before June or July and if there is a change in government, Siam may have to start its lobbying efforts all over again.

The last time the government rolled out a stimulus programme for the auto sector was in 2009, in the wake of the global financial crisis.

The Indian auto industry is reeling under the effects of a prolonged slowdown. Sales of commercial vehicles declined 17.51% between April and November this year. In the same period, sales of passenger vehicles declined 5.34%.

S.P. Singh, senior research fellow and convenor, Indian Foundation of Transport Research and Training (IFTRT), called the proposed scheme a “pipe dream" of the industry and questioned the rationale behind the mechanism.

Singh added that the scheme would boost truck sales and benefit manufacturers at the cost of transporters and fleet owners.

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