Observations, deductions and feelings fueled by tequila, tea and tobacco

Need for an Indian cash-for-clunkers

In Economics, Observations, Deductions and Feelings on August 6, 2009 at 03:43
Cal strike due to Old Car Ban

(AP Photograph)

Earlier today I read a few articles on the hugely popular cash-for-clunkers schemes in Europe and US (mostly on Economist, WSJ and Huntington Post), and started thinking about its relevance for India.

With the government and courts strongly pushing for phasing out of old vehicles, why doesn’t the government work out an incentive scheme to back its stick up with a carrot.

Specifically ensuring two things –

  1. New vehicles covered under the scheme should as fuel efficient as possible, preferably hybrids or REVAs. This could be done with incentive slabs based on increase in fuel efficiency.
  2. The other is forcing all returned vehicles to be immediately trashed. This ensures that the returned older vehicles (a) don’t continue polluting the environment while also guzzling subsidised fuel with some other owner and (b) don’t overwhelmingly dampen the demand for (newer and more fuel efficient) lower segment vehicles.

Infact, considering the scale of old vehicle usage in India and the relatively unhealthy state of government finances, I would even suggest staggering out the scheme. For instance, this year the government could offer it only for commercial passenger vehicles in, say, the largest 20 cities. Next year, it could only be for the commercial passenger vehicles in the next large 100 cities & towns. Parallely, next year the government could introduce an exchange scheme for commercial goods vehicles.

These schemes make more sense for India since

  1. it directly, though only lightly, impacts longer term problem of climate change, of which India could likely become one of the worst affected countries.
  2. even more importantly for government-of-the-day, it impacts the more painful oil import bill and subsidy burdens!
  3. it helps replace the current humongous fleet of highly inefficient and mostly archaic commercial goods vehicles with newer, more efficient ones. An hidden saving here could well arise from the reduction in damage caused to our roads.
  4. it creates an incentive system to guide Indian vehicle manufacturers into high fuel efficient, hybrid and electric vehicles. This could be help them develop a strong base for a global expansion in the future. As the new saying goes, just look what’s happening in China

This is a WIN-WIN-WIN scenario for Government, Greens and the Industry. The only loser here might be the old car owner, but the government is anyway forcing him to give up his old can. So what the heck, add on a few incentives and make his life easier too. Its WIN-WIN-WIN-WIN now. Beat that!

However, having seen our government’s attitude towards all things environmental, such a scheme would most likely be the last thing on their mind. Perhaps the powerful automobile manufacturers’ lobby, having usually done more bad than good, would use its muscle for the one time when its goals are aligned with that of the greens’ & fiscal conservatives’.

Cash for Clunkers

(AP Photo/Rick Bowmer) from Huntington Post

P.S.: For the folks coming over from twitter: Realised after sending that pushing out over half-a-dozen tweets on one story is bad twittiquette. Should’ve blogged it instead. Sorry again, for spamming folks!


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