Incentive-based policy will only create demand in the short term: CAPT NS Mohan Ram

Will policies such as 'Cash for clunkers' be feasible for India especially at a time when we are battling a slowdown and a pandemic? Read on to find out

Jul 04, 2020 YUGA CHAUDHARI DALVI No Comments

By :


In our previous article, Vehicle recycling centres await clarity on scrappage policy, TURN OF SPEED provided an in-depth analysis of India’s existing vehicle recycling infrastructure and the need to implement the scrappage policy owing to the growing number of end-of-life (ELVs). In this interview, Captain NS Mohan Ram (Retd), former President, TVS Motor Company who authored Recycling End of Life Vehicles - With special focus on India and Developing Nations explains how end-of-life (ELV) automobiles is a complex issue to address in a country such as India because it involves many stakeholders with conflicting interests and perspectives.  

TOS: Do you think this is the right time for the government to announce the vehicle scrapping policy, considering the ongoing slowdown in the automobile industry, which calls for some government intervention in favour of the sector? 

CAPT. NS Mohan Ram (Retd): The main objectives of the Government regulations and scrapping policy are:

1. To ensure old vehicles are scrapped in an environmentally acceptable and hygienic manner. 

2. To maximize recovery of usable parts and materials, saving energy and conserving raw materials.   

3. To remove polluting old vehicles from the roads to improve air quality in the cities and towns. 

4. To conserve foreign exchange currently expended for import of shredded scrap and other materials. 

5. To prevent abandoning of scrapped vehicles on the roadside.  

6. To create a viable modern recycling industry, which is commensurate with the  world class-world scale automobile manufacturing in India.   

The scrappage policy has been overdue as the number of old vehicles is increasing exponentially and will pose a huge problem unless tackled now. Helping the automobile industry during slowdown is a secondary and not primary objective.  Even if the auto industry recovers and operates at full capacity, a modern scrappage regimen is still essential and necessary for India. 

TOS: Various aspects of this policy are unclear currently. Will this policy be successful without the monetary benefits offered to the customers on scrappage of old vehicles? 

CAPT. NS Mohan Ram (Retd): This is discussed in some detail in my book. Policies such as Cash for clunkers in US, Umweltprämie in Germany, Prime La Coversion in France, and Rabla in Romania, offering financial incentives, help to create demand in the short term, and help clear polluting stock, but do not increase overall sales in the long run. I personally feel that such incentives should be used judiciously to clear very old stock. 

The outgo for meaningful financial incentives is large, neither the Government nor the industry can afford it in India at the present juncture. The Economist in an article however lauded the Cash for Clunkers scheme by saying, “the boost in demand that the rebates have brought about is exactly the sort of stimulus that is urgently needed to escape what John Maynard Keynes called a “liquidity trap”. According to his theory, consumers may become so worried about the economy that they cling to as much liquid wealth as possible, cutting their spending sharply and thereby triggering precisely the slump they feared. Moreover, as stimulus policies go, Cash-for-clunkers looks to be unusually effective. Admittedly, that is not an especially demanding measure, given that Keynes favoured, if need be, burying money in bottles for people to dig up and spend. Cash-for-clunkers has many benefits beyond simply getting more money passing through the hands of consumers and into aggregate demand."

To sum up, I personally believe that the scheme will give some short-term boost to demand but overall demand may not go up significantly. I also doubt whether the government or industry can afford to offer meaningful incentives at the current juncture with the pandemic raging. 

TOS: Does the vehicle scrapping policy also take into account the livelihood and sustainability of the existing vehicle scrappers, who have been running businesses since generations?  

CAPT. NS Mohan Ram (Retd): World over, small units have been moved out of the cities and forced to upgrade. It requires a strong will to enforce the change. The workmen can be trained in the new techniques and employed by large scale units. One cannot pollute the environment on the plea of livelihood. A suggestion has been advanced (by SIAM and discussed in my book) to the Government for setting up recycling parks, away from cities with incentives for the units to move, in the lines of industrial estates. 



Leave a Reply