Purchase incentive scheme to promote electric vehicles, FAME, nowhere close to sales target

Now, amidst calls by parliamentarians and industry experts for extending the incentive scheme (with some tweaks) and general dismay over the under-achievement of targets under FAME II, manufacturers of E-2 wheelers have shot off a petition to a parliamentary standing committee, questioning even the low EV sales numbers sent by the Ministry of Heavy Industries (MHI) to this committee.

Withdrawal of subsidies a prime reason

The E-2wheeler manufacturers have alleged that one of the primary reasons for the under-achievement of the total target for at least E-2wheeler sales under FAME II is the withdrawal of promised subsidies last year.

The Society of Electric Vehicle Manufacturers (SMEV) has also said in the petition that the “total number of E-2Wheelers sold under FAME II scheme between April 2019 and 2023 is listed at 9.6 lakh. But 4.5 lakh vehicles out of these have not been reimbursed the subsidy component till date, on one account or the other. This means that only around 5 lakh E-2Wheelers have been funded under the FAME II scheme: a clear shortfall in target by half.”

As per the architecture of FAME II, the purchase support was made available to buyers as a subsidy and this amount was to be refunded to OEMs by the government. But in April last year, the subsidy payment by the government was stopped amidst allegations that the OEMs were not meeting the mandatory localisation norms to remain eligible for FAME II.

The government has since then been conducting audits but the matter has not yet been settled. SMEV said subsidy payment to 12 OEMs was blocked amidst allegations of non-compliance with localisation norms that mandated a certain percentage of localisation for the parts used in E-2wheelers.

SMEV also alleged that the MHI did not inform the OEMs of its decision to withhold subsidies for a long time and the OEMs continued to sell the vehicles and pass on subsidies. The petition says more than Rs 1,400 crore in subsidies have been passed on by the OEMs to customers over the last 15 months.

So while the total sales number given by MHI for E-2wheelers is correct, the SMEV has raised a question mark over government claims of the sales having happened under FAME II.

Also read: A responsible EV startup is for the betterment of E2W industry: Bajaj Auto’s Rakesh Sharma

MPs want FAME II extended

The parliamentary standing committee, while examining the demand for grants by MHI for 2023-24, had already said in a report last month that the second phase of FAME “should be extended further with new targets, incentives and measures to boost electric mobility in the country. Furthermore, as one of the objectives of the transition to electric mobility is to improve air quality, the committee is of the view that the Ministry of Environment, Forest and Climate Change may be roped in as a partner player in the implementation of FAME-II Scheme.”

The panel had also wondered at the government's move to support just about 15.6 lakh vehicles in all under FAME II. “The Indian automotive industry is of the size of about Rs 10,00,000 crore, and, in FY 2021-22, there was a total production of 2.29 crore vehicles in the country, out of which there were 1.75 crore domestic sales. In a country like India, supporting only 15.62 lakh electric vehicles may not be enough to reduce carbon emissions and improve the air quality and to save forex on fossil fuel imports.”

In its presentation to the standing committee, the MHI secretary had said that E-2wheeler sales till December 31, 2022, were over 7.22 lakh (the figure crossed 9 lakh vehicles by March 31).

Meanwhile, another parliamentary committee called the Committee on Estimates, echoed the views of the standing committee on FAME II extension. It sought a third edition of the FAME scheme and an entirely new National Policy on EVs for their faster adoption. Another pertinent observation by this panel is about the comparatively fewer number of electric four-wheelers currently on Indian roads (compared to two and three-wheelers) since the gap between the price of electric and ICE four-wheelers is significant. It has suggested increased incentivisation for the promotion of electric four-wheelers.

Localisation begins

As promised by E-2wheeler OEMs last year, compliance with localisation norms has already started since many of the components needed to manufacture EVs are now available locally.

They include batteries, motors and other electronics. One E-2 wheeler manufacturer claimed that, in the last few months, suppliers of critical EV parts have developed their manufacturing systems and the OEMs are now fully compliant with the localisation norms specified under FAME II.

So will subsidies resume? The government is still conducting audits and the possibility of retrospective subsidy payment by the government appears low. The only way forward may be tweaking FAME II, extending incentives and resumption of subsidy payments to those OEMs which are compliant with all norms under the scheme in the future.