India’s ‘cash for clunkers’ scheme eyes $1.4 billion investment

India will make public within 15 days details of a “cash for clunkers” scheme which would spur around 10 billion rupees ($1.4 billion) in new investment and create as many as 50,000 jobs, road transport minister Nitin Gadkari said on Monday.

India’s finance minister Nirmala Sitharaman said in her budget speech earlier on Monday there would be a new voluntary scrappage policy based on a fitness test for private vehicles older than 20 years and commercial vehicles older than 15 years.

“This will help in encouraging fuel efficient, environment friendly vehicles, thereby reducing vehicular pollution and oil import bill,” Sitharaman said.

Automakers in India have been pushing the government for years to provide incentives for car and truck owners to scrap old vehicles for new ones – a move they expect will help to boost sales that are at multi-year lows.

Around 10 per cent of the 3.7 million trucks and 5 per cent of the 5.2 million cars on Indian roads could be eligible for voluntary scrapping, the Federation of Automobile Dealers Association of India estimated, using 1990 as a base year. It said the fine print of the scheme would determine the final impact on sales.

Industry executives and analysts said that while the voluntary nature of the scheme could limit its impact, the incentives offered by the government would be crucial in determining its success. The plan is expected to have more impact on trucks initially and then private cars.

Puneet Gupta, director at data analytics firm IHS Markit, said there could be an annual sales boost of 5 per cent for cars over and above natural demand.

“It will act as a catalyst and replacement demand will definitely increase in India,” he said, adding that carmakers including Maruti Suzuki, Hyundai Motor and Tata Motors would be the biggest beneficiaries.

The Nifty Auto index rose as much as 4.6 per cent led by an 11.4 per cent jump in shares of Indian truck-maker Ashok Leyland .