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Subsidising auto pollution

An Indian 'cash-for-clunkers' scheme is an absurd idea

Business Standard  |  New Delhi 

Increased competition in the automobile market is contributing to squeezed profit margins, on the one hand, but better deals for the consumer, on the other, including the introduction of newer models by smaller players, threatening the auto biggies’ hold on the market. Against this background, it is surprising that a proposal to subsidise the replacement of old cars with new ones, in the name of pollution control, has been put forward by the ministry of heavy industries and public enterprises. A pilot project has reportedly been set up in Chennai to work out the modalities of the scheme. A ministry engaged with the automobile industry can be expected – in fact that is its brief – to work for the good of the industry. The by now familiar justification for the idea, which has been trotted out before, is the “cash-for-clunkers” scheme which the United States and other developed countries had introduced when their economies were in the throes of recession after the global financial crisis of 2008. The Indian market is an altogether different place and this scheme is not a particularly bright idea.

What is surprising and disappointing is that the environment ministry should be supporting this absurdity. Fewer energy-inefficient old cars on the roads will certainly help control automobile pollution but there should be better ways of doing it than subsidising and promoting the private ownership of cars when that should, in fact, be discouraged if we are to seriously work for a healthier environment. (According to estimates, around half of all global emissions from transportation are accounted for by personal cars.) Even more disappointing is the reported argument of the environment secretary that scrapping old cars is good because that way we can get to reuse a lot of old components, as is done when old ships are refurbished. How many car owners of today go in for second-hand components when these need replacements? If old cars are phased out by a scheme like the one proposed then the market for reconditioned parts will shrink, not grow. Who will use a reconditioned component in a three-year- old car? On the other hand, if the goal is to recycle and reuse then the focus should be on reconditioning used cars in their entirety. What the ministry should actually ask for is subsidy to use cars longer, thus saving on resources and promoting sustainable development. But if that happens, what will become of auto companies’ sales?

The most obvious way to encourage energy efficiency, reduce automobile pollution and cut subsidies is to reduce the subsidy on diesel, particularly when the owners of luxury cars and SUVs are becoming unintended beneficiaries of the subsidy. The other obvious way is to subsidise – not just charge lower excise duties – the sale of buses. There can be other innovative ways of serving the same goal. Attractive prizes can be announced for the design of more energy-efficient, robust and comfortable passenger three-wheelers which are an important mode of public transport on rural roads as well as narrow city lanes. Hopefully, greater public awareness will ensure ministries do not fall prey to the agenda of some auto companies.

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First Published: Tue, July 05 2011. 00:26 IST