scorecardresearch

EV makers face scrutiny due to lack of clarity on FAME II subsidy scheme, phased manufacturing programme

Department of Heavy Industries sends notices to EV makers to ensure local sourcing of components, but there’s no clarity on extended timeline for compliance.

EV makers face scrutiny due to lack of clarity on FAME II subsidy scheme, phased manufacturing programme

Electric vehicle makers in India are under scrutiny and availing subsidy under the FAME (FAME scheme (Faster Adoption & Manufacturing of Electric Vehicles (& Hybrid)) II scheme is likely to take a bit longer. The Ministry of Heavy Industries (MHI) has sent notices to electric vehicle makers to make sure that the components used in their vehicles are locally sourced to avail benefits under the FAME II scheme.  

It is interesting to note that over the last few months, many electric vehicle makers were facing delays in getting subsidies under the FAME II scheme. And now it is learnt that the Heavy Industry ministry has suspended incentive payout for electric two-wheeler makers Hero Electric and Okinawa for allegedly not meeting the localisation norms. Revolt Intellicorp, Okaya and Greaves Cotton-owned Ampere Vehicles are also under the lens to confirm if they meet the localisation norms.

On the other hand, a closer look at the situation reveals more than what meets the eye. The situation has arisen because of alleged ‘mis-interpretation and clarity on the PMP (phased manufacturing programme) for electric vehicle parts under the FAME II scheme.

The PMP aimed to ensure that OEMs would locally source components for electric vehicles including crucial components to avail incentives and cut down reliance on imports. This would not only bring down the costs of components but also help make India a leader in manufacturing of electric vehicles and components.

DHI Notification

In September 2020, the Heavy Industry Ministry issued a notification (image above) with the revised timeline about what components needed to be localised by when, and for which category respectively. However, the onset of Covid-19 led pandemic had disrupted manufacturing globally including plans for OEMs in India to locally source components.

On April 12, 2021, the DHI issued an extension (image below) for validity of FAME II-certificates for all electric vehicle categories (two-, three- and four-wheelers) for a period of one year from the date of issue. The ministry also informed OEMs and testing agencies that all approved models needed to be re-validated within an additional timeline of a month from the last day of the validity of the certificate.

DHI Notification2

In simple terms, this meant an OEM who had received FAME II validation certificate had a year from the date of the issuance of the certificate. For example, an EV maker who applied and got FAME II certificate for its model on October 1, 2021, would need to get a re-validating certificate by September 30, plus one month extension i.e effectively by October 31, 2022.

As per industry sources the notification by the “Heavy Industry ministry failed to specify that the certificates did not imply extension to PMP.” And hence, OEMs were gearing up to make the necessary changes to their products during the re-certifying process (once the earlier certificates expired).

What is FAME II Scheme?

For the unversed the FAME scheme (Faster Adoption & Manufacturing of Electric Vehicles (& Hybrid) was first introduced in April 2019, by the government of India, which aimed to make the prices of electric vehicles (& hybrids) competitive to that of internal combustion (petrol, diesel) vehicles. The scheme had an outlay of Rs 10,000 crore with an aim to subsidise 5,00,000 electric three-wheelers, 55,000 electric four-wheelers and a million electric two-wheelers. 

Till date, a total of 6,24,619 EVs have been sold under the FAME II scheme, with the government of India having an expenditure of Rs 2,602 crore  from the Rs 10,000 crore budget outlay. A total of 133 models are presently eligible across segments to benefit from the FAME II scheme.

Why is it important?

The organic demand for electric vehicles globally has seen a mixed response, rich countries with higher per capita income are seen to be the first adopters and paying a premium for EVs over their IC-counterparts is more acceptable. But for a country like India, where two- and three-wheelers still account for a large portion of first- and last-mile transportation, the cost differentiation between IC-vehicles and their green counterparts without subsidies may not see much of traction.

Global learnings

If one looks at the global trends especially China, the demand for electric vehicles was greatly linked to the incentives. The Chinese government started its EV subsidy program back in 2009 and till date has spent an estimated $14.8 billion (Rs 1,19,569 crore) to buyers to drive demand.

As per data available online, the sales of EV’s started declining as the subsidy program was about to stop, which led to Chinese government further extending the program by a year.

Outlook

As per industry sources, the FAME II scheme in its current avatar has helped drive sales of electric vehicles and will be need to exist for another couple of years till cost parity between IC-vehicles and their EV counterparts (especially in the two- and three-wheelers) is achieved. Without FAME II subsidies this would take a longer duration to drive adoption of EVs and could also lead to many start-ups and new age companies shut shop. 

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 07-10-2022 at 18:42 IST