Surprising to hear about “misappropriation of funds” when these have not been passed on to OEMs says SMEV's Sohinder Gill | The Financial Express

Surprising to hear about “misappropriation of funds” when these have not been passed on to OEMs says SMEV’s Sohinder Gill

The electric two-wheeler industry is poised to be the fastest growing segment in India.

Sohinder Singh Gill

The demand for electric vehicles is accelerating and the number of new OEMs entering the segment is also seeing a steady upmove. But at the same time, with around Rs 1,100 crore subsidies not passed on to 12 EV makers for “alleged misappropriation of funds” has faltered the potential growth of electric two-wheelers. Sohinder Singh Gill, Director General, SMEV (Society of Manufacturers of Electric Vehicles) and CEO, Hero Electric, shares his thoughts on the year gone by, the slowdown in EV sales, accusations on EV industry, and expectations from Budget 2023.

How do you assess the year go by for sales of electric vehicles in India?

There is an overall improvement in the number of electric vehicles sold including electric three-wheelers and electric cars. However, the electric two-wheeler being a focus area of the FAME policy, the figures need a closer look.

The growth in electric two-wheelers with regards to the targets have slowed down in the last few months, and the industry may achieve only 8 lakh units in FY 2023 against the 10 lakh plus projected by NITI Aayog (and many other research organisations). More worrying is that this slowing down may adversely affect the FY2024 volumes that are projected to be 2 million plus units.

What is the reason for the slowdown?

The major factor has been the blockage of Rs 1,100 crore subsidy for the last 10-12 months on the pretext of insufficient localisation, which has squeezed the working capital of all affected companies, forcing them to reduce production to the bare minimum or stop production entirely.

In April 2019, the electric two-wheeler industry was given an impossible target of 100% localisation in 12 months. The total industry annual volumes in those years was only around 25,000 units and none of the top vendor (read suppliers) were interested in taking up the development of high-tech components, stating extremely low volumes, impossible timelines, and no transparency of long-term policy support.  The Covid-19 pandemic further derailed whatever efforts were put in.

Would you say it was a chicken-and-egg situation or premature enforcement of targets?

I think the policymakers failed to understand that OEMs cannot force any vendor if it does not make any business sense to them at such low volumes and with no clarity of long-term policy. A few small vendors who finally agreed clearly lacked the muscle and capability went into their shells due to the Covid lockdowns. Knowing all these constraints, the Ministry of Heavy Industries continued to support the OEMs and localisation continued on a “best effort basis” and the industry started growing exponentially, particularly after the FAME II revision in June 2021. 

Perhaps this really set off an alarm in the minds of those who did not want the electric two-wheeler segment to grow so sharply, and the industry suddenly witnessed a tirade of malicious carefully curated incessant campaigns to bring down the top electric two-wheeler players, carpet bombing all the ministries and the media.

These faceless Swiss-based emails slowly spread their net to 12 EV players, leaving only the legacy players aside. The pressure grew so much on the Ministry of Heavy Industries that they had to suddenly take a U-turn on its flexible approach and adopt an extremely rigid stand stating that now their localisation policy is cast in stone and the Ministry has no authority to factor Covid or other difficulties into its implementation.

What is your reaction to the Ministry of Heavy Industry accusing these 12 companies of misappropriation of funds?

It is surprising to hear words like “misappropriation of funds” when these funds have not been passed on to OEMs. The EV makers have already passed on the subsidy and given the benefit to the customers and haven’t got a penny back from the Ministry of Heavy Industries.

Equally incomprehensible is the rigid attitude of the Ministry of Heavy Industries that has led to a chain reaction of banks withdrawing their Working Capital limits, credit rating agencies putting companies under watch list, and investors aborting their funding plans. I think the Ministry of Heavy Industries hasn’t imagined the colossal indirect damage done to the electric vehicle industry in terms of thousands of job losses and the start-ups attached to OEMs also winding up.

What is the likely impact on the existing and prospective customers?

There are around 1.5 million electric two-wheeler users in India. If this issue is not resolved quickly, there may be a huge crisis in the availability of parts and service centres for most of these EV owners. This may create huge negativity in the minds of prospective customers and may derail the EV revolution for many years.

How confident are you about the resolution of the conversation you are having with the government on behalf of SMEV? Do you see a resolution in sight?

I am still hopeful that better sense will prevail and the Ministry of Heavy Industries and the EV industry will jointly find a practical solution to get out of the crisis and align to work towards a common goal of reaching 30% adoption of electric two-wheelers by 2025.

Do you have any expectations from the budget, any incentives for these industries, or what kind of conversations you have had with the finance ministry for the sector?

We have submitted our suggestions for the budget and the FAME policy extension. I think the FAME policy subsidies should be directly passed on to the customers. Instead of a time-based policy, we can have a policy that supports EV adoption till it reaches around 20 percent level and then the subsidy can be tapered. I also think that the resources for the subsidy should be generated by taxing the polluters rather than dipping into the exchequer.

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First published on: 02-01-2023 at 13:32 IST