In the last few months there has been a lot of controversy and news around the union government’s FAME 2 scheme and subsidies being halted or investigation happening on electric two-wheeler makers.
Over the past several months there have been talks of the government not passing on the FAME 2 subsidies to electric vehicle manufacturers. The controversy started with an alleged email sent by a whistleblower that claimed EV makers had been violating the FAME 2 localisation norms and hence have claimed fraudulent subsidies.
To understand the reality and situation from both sides, one needs to go back to the premise and history of the scheme.
Brief History of FAME Scheme
It was in 2011, the government launched the FAME India (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India) scheme as part of the National Mission on Electric Mobility. The scheme came initially approved for a period of two years starting April 1, 2015.
The first phase of the FAME scheme saw an expenditure of around Rs 895 crore to set up 427 charging stations and Rs 359 crore in subsidies for 2.8 lakh electric and hybrid vehicles. It is interesting to note around 30 OEMs and 137 models across categories were eligible for the incentive.
The first phase of the FAME scheme lasted till March 31, 2019. An independent consultant who evaluated Phase 1 of the FAME Scheme found –
- Overall outcomes of key parameters of fuel saving and CO2 reduction are significantly below the target for FAME.
- Industry players have been cautious about developing capabilities – players chose to operate adjacent to their core capabilities.
- Subsidy structure needs to be revised based on the powertrain technology and to establish parity across technologies.
- Overall phased implementation plan took off but at a very slow pace. The next phase of scheme extension should focus on a clear catch-up plan.
- Benefits from unaccounted segments like e-3W and e-rickshaws can potentially add to the results, however growth in segments like e-rickshaws was unplanned. Support to these segments to be evaluated.
Introduction of FAME 2 scheme
The second phase of FAME 2 scheme came with much more specifics to ensure that the nascent EV segment in India could build up its capabilities for not just domestic requirements but also become a preferred global EV hub.
The FAME 2 scheme came into effect from April 1, 2019, with a massive budget outlay of Rs 10,000 crore for a period 3 years, with an emphasis on demand incentives. The scheme allocated around 86 percent of the funds for supporting 7,000 e-buses, 5 lakh electric three-wheelers, 55,000 electric four-wheelers and 10 lakh electric two-wheelers. The scheme only provided support for EVs which used advanced battery chemistry (read Lithium-ion or similar chemistry).
In June 2021, after consultations with the industry the government increased the demand incentive for two-wheelers to Rs 15,000 per KWh, from the earlier Rs 10,000 per KWh, but with a cap of a maximum 40 percent of the cost of vehicles.
However, the challenge was that as the demand for electric vehicles was low and the legacy players were still not investing and introducing products. The annual sales of EVs in India has grown from 94,852 units in FY2018 to 1.17 million in FY2023. But if one looks at segment-wise performance, it is important to note that the sale of high-speed electric two-wheelers (eligible for FAME2 subsidy) was less than 50,000 units till FY2021.
EV makers claim that while they wanted to adhere to the localisation or the (Phase Manufacturing Programme) PMP norms, that asked for 50 percent of components to be locally sourced, the lack or dearth of suppliers forced them to rely on imports. On the other hand, component makers argue that it was difficult to introduce new products and invest in tooling for low-volume orders. A classic chicken-and-egg situation was cooked. Adding to that the Covid-19 situation further delayed the growth of the industry.
|Category||Electric 2-wheelers||Electric 3-wheelers||Electric 4-wheelers||E-buses||Total|
|*Data for 2023-24 is as of April 12, 2023|
Rs 1,000 crore-plus subsidies on hold
Acting on an unknown whistleblower, the government on its part stopped passing on the FAME 2 subsidies to EV makers pending investigation on the alleged malpractices by them.
This has led to over a dozen EV makers being investigated for failing to meet the localisation norms. On their part, the EV makers claim that they had been given verbal extensions by the government officials to meet the norms. But now there has is an ongoing investigation to understand that if the EV makers claimed to have intentionally not met the norms and were claiming the subsidies or their was genuine reason.
As per industry estimates there is more than Rs 1,000 crore worth of subsidies claimed by EV makers that has not been passed on by the government.