FAME-II scheme case: Hero Electric CEO says not received any notice for subsidy recovery; awaits quick resolution

(Left-Right) Hero Electic CEO Sohinder Gill and MD Naveen Munjal

Amid reports of the Union government seeking to recover Rs 150-Rs 250 crore claimed by two-wheeler players Hero Electric and Okinawa as subsidy in the case related to "alleged misappropriation" of subsidies given under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, the CEO of the former two-wheeler company denied receiving any such letter from the Ministry of Heavy Industry (MHI).

In a statement dated April 30, Hero Electric CEO Sohinder Gill said, "We have not received any such letter from the Department of Heavy Industries so far but we would be happy to respond to it..."

Gill also said that the company awaits "any formal communication from MHI towards quickly resolving the subsidy deadlock, as this could be the first step to help us to recover the Rs 500 crore held up with the Department as unpaid subsidy quickly."

The statement comes just days after reports of an investigation ordered by MHI showed the two companies "allegedly used multiple imported components in electric two wheelers, violating norms. The two companies also face de-recognition under the scheme, barring them from any subsidy payment in future," reported The Times of India.

Citing sources, an earlier CNBC-TV18 report also added that the authorities have received legal opinion in the matter.

The news channel's sources claimed that the probe against Hero Electric and Okinawa revealed that they allegedly claimed subsidies of Rs 250 crore for imported components, but declared the consignments as being made indigenously. Both companies, as per the sources, cited non-disclosure agreements with component suppliers in their replies to the government.

ALSO READ: FAME scheme case: Govt mulls clawback of subsidies, FIR against Hero Electric, Okinawa

Clarifying on the allegations, Gill defended that Hero Electric has "followed the entire CMVR (Central Motor Vehicles Rules) and certification process for manufacturing and selling its entire range of e-bikes for the last 15 years and ensured good quality products and efficient after sales service," adding that the automaker's core strategy has been to offer "value-for-money" and 90 percent of the products have been sensibly priced between Rs 50,000 to Rs 85,000.

In terms of hurdles faced by the two-wheeler sector amid the harsh COVID-19 pandemic, Gill also highlighted that the market leaders manufacturing big volumes in the year 2019-21 have been the worst affected because of non-existing supply chain which was further hit by Covid for two consecutive years in 2020 and 2021. Late entrants such as OLA, Bajaj, TVS, Kinetic, Okaya benefitted thanks to the supply chain that was beginning to take off in small numbers, he added.

"The issue that needs to be resolved is therefore pertaining to the 2 to 3 years beginning 2019 that had no supply chain and also suffered a Covid blackout period from whatever small scale Indian component were trying to do," Gill added.

To be sure, government approved Phase-II of FAME Scheme with an outlay of Rs 10,000 crore for a period of three years commencing from 1st April 2019. Out of total budgetary support, about 86 percent of fund has been allocated for demand incentive so as to create demand for xEVs in the country. This phase aims to generate demand by way of supporting 7,000 e-buses, 5 lakh e-3 wheelers, 55,000 e-4 wheeler passenger cars (including strong hybrid) and 10 lakh e-2 wheelers. Albeit the scheme will be applicable mainly to vehicles used for public transport or those registered for commercial purposes, privately-owned registered e-2Ws are also covered under the scheme as a mass segment, the Ministry of Heavy Industries had stated.

Highlighting the second phase of the scheme, Gill said that another fact that should be considered is the real objective of FAME II guidelines. Localization to the value of 50 percent is a guiding light towards a Make in India mind set, but a short fall of 5 or 7 or 10 percent in the final product should not be read as a willful default, but a logistical crunch, Gill asserted.

The investigation into FAME scheme irregularities was initiated by government testing agencies Automotive Research Association of India (ARAI) and the International Centre for Automotive Technology (ICAT) after whistleblowers raised apprehensions. As part of the probe, inputs from the commerce ministry and directorate of revenue were sought to crosscheck customs records and ascertain whether there was any deviation from the phased manufacturing programme, the CNBC TV-18 report said.

"We are confident that unlike the previous executives that had blocked all our attempts to find any resolution, the current officials will work towards a practical resolution based on the situation on the ground and quickly reimburse the locked subsidy that has crippled our business operations," Gill concluded.

Apart from the two companies, 12 other two-wheeler EV makers - Benling, Okaya, Jitendra New EV, Greaves Electric Mobility, Revolt Intellicorp, Kinetic Green Energy, Avon Cycles, Lohia Auto, Thukral Electric & Victory Electric - are under the radar. The investigations against them are currently underway, the CNBC TV-18 report said.