The Electric Vehicle Industry Forum (EVIF) has written to the Ministry of Heavy Industries (MHI) to continue the third phase of the Faster Adoption & Manufacturing of Electric Vehicles (FAME) scheme for another five years for all existing segments of electric vehicles (EVs), including two-wheelers.

The industry body maintained that withdrawing existing incentives for EVs under FAME II could impact the overall demand in the short term. It will also disrupt the recent momentum that EVs have gained amidst rising concerns about polluting emissions from vehicles running on fossil fuels and the growing fuel costs.

The Indian government aims for a 30 per cent EV penetration in the transport sector by 2030, which currently hovers below 5 per cent. By providing subsidies for the purchase of EVs, FAME II helped significantly boost demand, especially for two-wheelers, three-wheelers, and commercial buses. Launched in 2019 with a budget allocation of Rs 10,000 crore, this initiative spans a three-year period. It aims to support 7,000 electric buses, 5 lakh electric 3-wheelers, 55,000 electric passenger cars, and 10 lakh electric two-wheelers.

The subsidy applies to electric four-wheelers used by fleet operators. As of December 21, 2023, media reports claim that a total of 12,16,380 vehicles have received subsidies under this scheme, amounting to an expenditure of Rs 5,422 crore.

End of FAME II Policy In Sight?

Indian Federation of Green Energy (IFGE) claimed that it was imperative that this support be continued until the country reached a 25 per cent threshold, aligning with global subsidy schemes. A premature withdrawal invites the risk of a sharp decline in demand.

Its letter to MHI also acknowledged that removing subsidies will spike EV prices, impacting the hard-earned adoption momentum and hindering investments in manufacturing and the ecosystem. FAME II's local production mandate is also tied in with the government's ambitious 'Make in India' plans, and its absence could increase component imports, disrupting the initiative. The PLI scheme, linked to EV sales, faces adversity if demand decelerates.

"The news of withdrawing subsidy on e-2W has demotivated the Indian manufacturers and suppliers of e-2W components. It will enhance the imports from China; as per estimates, there will be a 40% rise in imports from China and also affect the Make in India initiative. The withdrawal of subsidy will also enhance the CKD (Complete Knock Down) imports from China," the letter said.

The proposal urges the government to continue the ongoing support for integrating plug-in hybrid electric vehicles (PHEVs) and strong hybrid vehicles (SHEVs) into the passenger car decarbonisation process, aligning with FAME-II's provisions. It also recommends an extension of the government's Phased Manufacturing Program (PMP) incentive calculation and localisation norms under the existing FAME-II quality parameters in FAME-III.

The government has also sanctioned Rs 800 crore under FAME II to the public sector oil manufacturing companies (OMCs), including IOCL, BPCL and HPCL, to set up 7,500 fast-charging stations pan-India, which would encourage EV adoption.

However, the government is disinclined to extend the FAME incentives beyond the stipulated time as major EV two-wheeler makers, the largest beneficiaries of FAME I and II, no longer require administrative support.

The MHI had also cut down the subsidy of Rs 15,000 per kWh for electric two-wheelers in May 2023, bringing it out to Rs 10,000 per kWh of battery capacity. The total subsidy caps it at 15 per cent of the E2W's ex-factory price, with a maximum limit of Rs 1.50 lakh, previously at a 40 per cent limit.

The withdrawal of subsidies for EVs will affect the MSME sector adversely, threatening their existence. To promote electric mobility, incentives shouldn't be provided only to individual buyers who can afford cars or two-wheelers. Instead, the focus should be on investing in the development of the ecosystem to bolster and sustain e-mobility.