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All you wanted to know about cash for clunkers

| | Updated on: Aug 31, 2015
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At a conference on public transport innovation in Delhi, Transport Minister Nitin Gadkari said the government is working on a ‘cash for clunkers’ scheme. Consulting firm McKinsey has been roped in to draw up the contours and the finance ministry will be soon approached to provide the incentives, he explained.

What is it?

‘Cash for clunkers’ refers to the provision of financial incentives to the owners of vehicles to get them to scrap outmoded models and replace them with newer vehicles. Such schemes are intended to reduce the numbers of older and more polluting vehicles plying the roads. At the same time, they give a leg-up to new vehicle sales. Those who sell their old vehicles for scrapping will be given a certificate. On producing this certificate at the time of buying a new vehicle, a discount of up to ₹50,000 can be availed from the manufacturer (the bill will probably be footed by the government). Besides, in the case of bigger vehicles like trucks, there are also likely to be some tax incentives for scrappage. The total benefit in this case is likely to go up to ₹1.5 lakh. The government also has global ambitions on this front. It intends to import old cars from across the world and recycle them here. Scrapyards near ports such as Kandla are proposed to be set up for this purpose.

Why is it important?

During the global economic crisis of 2008-09, the US, the UK, China, Germany and France came out with cash for clunker schemes to speed up new vehicle sales and help stimulate their economies. With demand in some segments such as cars, two-wheelers and light trucks stuck in second gear in India right now, this move could similarly boost domestic auto sales. The setting up of plants and scrapyards can result in employment generation.The National Green Tribunal recently banned diesel vehicles over 10 years old from plying in the national capital. A cash for clunkers scheme would help in such situations too. The scrapping of old vehicles will help rev up the demand for vehicles with better emission control systems. Other developing countries such as China upgraded to the equivalent of Euro V emission norms a year or two ago. But in India, the usage of vehicles with even BS IV (equivalent of Euro IV) norms is compulsory only in select parts of the country.

Why should I care?

If you believe that good health is wealth, you can look forward to breathing in cleaner air if older vehicles are taken off the roads. If found viable and implemented, the cash for clunkers scheme can make the air quality across cities, which is currently abysmal, better.

Besides, if you upgrade to a new petrol/diesel vehicle, the higher emission norms that it complies with would help improve fuel efficiency and maybe lighten your fuel bills. As new vehicles come with better safety features, road safety is also likely to improve.

If you hold the shares of auto and auto component companies, you can look forward to good times. New vehicle sales volumes would receive a booster shot from higher demand. Plus, if you’ve already been thinking of upgrading your vehicle, you could now look forward to the government paying you for it.

The bottom line

Cash for clunkers sounds great, doesn’t it? But keep your fingers crossed; it’s only on the drawing board right now.

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Published on January 23, 2018

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