Government plans cash-for-clunkers scheme to replace 15-year-old commercial vehicles with new one

NEW DELHI: The commerce & industry ministry has proposed a version of the US government's 'cash for clunkers' programme to help revive India's manufacturing - replace your 15-year-old commercial vehicle with a new one and the government will chip in with Rs 1 lakh.

Ahead of next year's general election, this could even double up as a poll sop, apart from giving beleaguered commercial vehicle manufacturers a lease of life.

The department of industrial policy & promotion ( DIPP), which is a part of Anand Sharma's ministry, has proposed a Rs 1,000-crore scheme that could incentivise the purchase of 1 lakh new commercial vehicles (CVs).

"The idea is to rekindle manufacturing in the country... the automobile sector has immense trickle-down effect," a senior DIPP official told ET, adding the idea isn't new to India. The Centre had offered subsidies to states for replacement of buses under the Jawaharlal Nehru National Urban Renewal Mission (2005-14).

Commercial vehicle sales fell 17.5% in April-November, prompting lobby group Society of Indian Automobile Manufacturers to seek government intervention.
"Such a scheme would provide big relief to the industry... It has been one of the recommendations of SIAM... We are seeing high fuel consumption, high pollution and low industrial growth and the scheme can help on all these counts," said Vishnu Mathur, director-general, SIAM.

DIPP says the amount to be spent won’t be too big and will have popular appeal besides leading to the phase-out of old and polluting vehicles.

The Rs 1 lakh subsidy will go directly to the manufacturer once the vehicle is sold, which DIPP argues will prevent any leakage of the subsidy.

DIPP is of the view that such a scheme can immediately pull the manufacturing sector out of the dumps with minimal expenditure. The manufacturing sector contracted by 0.3% in April-October, worrying policymakers.

The thinking at DIPP is that specific, targeted stimulus works better than more sweeping measures and such a scheme will generate immediate results.

A tight-fisted finance ministry that has committed to deliver on its budget target of keeping the fiscal deficit at below 4.8% may not be willing to take up any new expenditure. But it is likely that the upcoming polls and the immediate impact that such a scheme can have may soften North Block’s tough stance.

However, Abheek Barua, chief economist at HDFC Bank, felt such a programme could convey the wrong impression at a time fiscal consolidation is a priority.

“The scheme can only help at the margins as the root problem of this segment lies elsewhere in mining and infrastructure getting back on track... Any new subsidy scheme will send out wrong signals at this juncture,” he said.

The US ‘cash for clunkers’ programme refers to the $3-billion Car Allowance Rebate System that ran for a month in 2009 and was aimed at reviving the auto sector there in the wake of the financial crisis. The rebates were aimed at getting car owners to trade in older fuel guzzlers for more efficient vehicles.