Govt considers reducing subsidy for EV two-wheelers in FAME scheme

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The prices of two-wheeler electric vehicles are likely to rise sharply as the Ministry of Heavy Industries is considering increasing the outlay for EV two-wheelers and reducing the subsidy per vehicle.

The ministry plans to raise the outlay by 75 percent from the current Rs 2,000 crore under the FAME-II scheme. There are no plans to extend the FAME-II scheme beyond March 2024 or introduce FAME-III, according to a government official.

A stakeholders' meeting was recently held with 24 electric two-wheeler original equipment manufacturers (OEMs) registered under FAME-II. It was decided that the demand incentive would be maintained at Rs 10,000 per kWh of battery capacity, but the cap would be reduced from the current 40 percent of the ex-factory price to 15 percent.

This decision was made to ensure the scheme's longevity, as the current rate of disbursal would deplete the subsidies within two months.

The proposal for these changes will be presented to the Programme Implementation and Steering Committee (PISC), an empowered panel responsible for implementing changes in the Rs 10,000 crore FAME-II scheme.

The official stated that most two-wheeler OEMs expressed the desire for the subsidy to continue for a longer period, even if it is reduced. Thus, a consensus was reached to reduce the subsidy to 15 percent for two-wheelers, allowing the scheme to last until February-March.

The official acknowledged that the industry eventually needs to become self-sustainable and admitted that the growth rate of electric two-wheeler sales, which has been high, may decline slightly.

Reacting to the plans of the ministry to cut subsidies provided to electric two-wheelers under the FAME-II Scheme among other possible changes, Sohinder Gill, Director General, SMEV (Society of Manufacturers of Electric Vehicles) and CEO of Hero Electric, said: “We feel this sharp reduction in the subsidy is going to hurt the market and the adoption of E2Ws may go down substantially. The premium bikes enjoying a subsidy of around Rs 60,000 were having a dream run of sucking almost 80 percent of the subsidy in the last few months... These premium bikes may now see the biggest decline because the reduction in their subsidy is also the highest. These OEMs may now rush to launch stripped-down versions of their models to try and keep the market shares.”

“The ground reality is that the Indian market remains price-sensitive, and the total cost of ownership is not firmly established in consumers' minds. With the majority of petrol two-wheelers costing less than Rs one lakh, there are fewer chances of consumer spending upwards of Rs 1.6 lakh, after factoring in the total cost of ownership.”

Union Minister of Heavy Industries Mahendra Nath Pandey emphasised the government's commitment to supporting the industry in achieving sustainable growth and reducing carbon emissions, as the demand for electric two-wheelers continues to rise. He believes that this move will benefit both the environment and contribute to a stronger and more resilient economy.

Acknowledging the situation at hand, Sohinder Gill said: “The Ministry of Heavy Industries had already announced a few months back that they are about to achieve their target of one million sales in four years and subsidy may not continue thereafter. However, the industry felt that it is too premature to withdraw the subsidy as the E2W had hardly reached a 4.9 percent adoption rate. So, subsidies must be continued for at least three years before they are tapered off.”

“In the absence of any additional budget, the ministry was left with no choice, but to either suddenly stop the subsidy or to somehow manage the rest of the year by greatly reducing the budget and drawing some unspent money from the E3W budget. On top of it, there is no clear indication of FAME III support. Hence, the industry also had no choice but to accept this else the subsidies would have finished instantly.”

The FAME India scheme, aimed at faster adoption and manufacturing of electric and hybrid vehicles, began on April 1, 2019, for a three-year period and was later extended for an additional two years until March 31, 2024. The total outlay for FAME Phase II is Rs 10,000 crore, providing incentives to buyers of electric vehicles and encouraging their wider adoption.

The scheme primarily focuses on public and commercial electric vehicles, including electric three-wheelers, electric four-wheelers, and electric buses. However, privately owned registered electric two-wheelers are also eligible for incentives.

With Agency Inputs