SCRAPPAGE POLICY – THIS COULD REALLY MOVE THE ECONOMY

Remember the famous “Cash for Clunker” scheme which was put out by the Obama Govt to battle the slowdown, beat the US auto industry out of recession?

Well, we will soon be having our own version of this scheme – Scrappage Policy and unlike the major drawback of Obama’s scheme, which was the cash incentive, here there is no cash incentive being offered. The logic is simple – if you have a gas guzzling old car, 15 years and older, you need to get it off the road and buy a new, more fuel-efficient car. This is expected to have a two prong benefit – make the air cleaner by removing these clunkers off the road and boost demand for automobiles, which in turn is expected to kick start the entire economy.

A quick look at the highlights of the proposed scrappage policy:

• Charge 25 times original registration charges on old cars and registration charges for renewal of old commercial vehicle may increase to Rs 40,000 from Rs 1,500.
• As per the draft authorised vehicle scrapping facility (AVSF) guidelines, individuals, firms, societies or trusts will be allowed to set up scrappage facilities subject to meeting the eligibility criteria and receiving authorisation from the licensing authority.
• Authorisation will be valid for 10 years and can be renewed for another 10 years.
• Prospective scrappers must have usable treatment facilities with a minimum area of 4,000 sq metre for small vehicles and 8,000 sq metres for all bigger vehicles.
• Vehicles with no renewed registration, no fitness certificate and those auctioned, impounded and abandoned by any enforcement agency, among others will be allowed to be offered for scrapping.

But the biggest question – why will someone like someone like me and you want to exchange the old for new, even if it is good for the environment as it will ultimately hurt our pockets too? Well, earlier it was proposed that like the US, we too might get some incentive. But that idea has now been dropped.

The talk doing the rounds is that the only form of exemption will be no road tax to be paid by the buyers against presentation of scrap certificates. This incentive will materialize if the state’s agree. Other form of incentive, those in the Govt circles said will have to come from the manufacturers. How that will work is that when you sell the old vehicle for scrapping, you will get a certificate and when you show that at the time of buying a new vehicle, a discount of Rs.5000 will come from the manufacturer. For trucks, there could be added tax incentives for scrappage. A truck owner, when he sells old and buys new could benefit to the tune of R.1.15 lakh.

This, at least on paper sounds very ideal. It is now awaiting the cabinet approval after which, it will be ready for takeoff. We cannot help but wonder whether we have space and facilities now for scrappage? That kind of infrastructure could take a while to come up.

All in all, this is a very good policy and apart from kick starting demand and cleaning the air to some extent, more significantly, it will generate employment opportunities.

This is a Keynesian policy and it’s amazing that even in today’s time it seems so relevant. They say that automobile sector is the wheel of the economy; so if we can get this going, surely the economy will also move ahead….