The changes to the government scheme will give a big fillip to demand for electric vehicles.
By Saurabh Agarwal
Under the FAME II (Faster Adoption and Manufacturing of Electric Vehicles in India) scheme, direct financial benefits are offered to electroic vehicles (EVs) manufacturers to help reduce the cost of acquisition by end-customers. As a mechanism, the original equipment manufacturers (OEMs) first pass on the subsidy benefit to end-customer (by way of reduced purchase price) and later claim the amount from the department of heavy industries (DHI).
The benefits are available to various categories of vehicles, including two- wheeler EVs, and are subject to fulfilment of various conditions, like fulfilling requirement of Phased Manufacturing Program (PMP), i.e., localisation, registration of vehicle as ‘Motor Vehicles’ under the Central Motor Vehicle Rules, registration of model with DHI, etc.
FAME II provides a much wider coverage to the industry and has two primary mechanisms/ verticals to incentivise EV space—(1) demand incentives and (2) establishment of network of charging stations. The scheme is valid for a period of three years effective April 1, 2019. It is likely that the scheme would continue in the revised form even after March 31, 2022. The Centre has recently enhanced the per vehicle subsidy offered on two-wheeler EVs manufactured in India, from Rs 10,000 per KWH to Rs 15,000 per KWH, while simultaneously increasing the overall cap of benefit from 20% of the cost of vehicles to 40%.
The increased subsidy offered to two-wheelers is likely to bring down the cost of vehicles by 10% to 25%, though the numbers can vary depending upon variable parameters like battery capacity, cost of vehicles, etc. However, the probable scenarios indicate an additional benefit ranging from 50-100% from existing levels of FAME subsidy. This reduces price of two-wheeler EVs and is likely to help in early adoption of EVs.
The FAME subsidy, coupled with additional benefits under the PLI scheme for advanced chemistry cell (ACC) batteries—a key component for the EV manufacturing—could provide an additional 1-3% reduction in cost of EV batteries.
Further, it is expected that the EV sector is likely to be get significant incentives under the PLI scheme being considered for the auto sector.
While the fine print of the scheme document is still awaited, it is expected that the incentives may range from 6-20% for EV manufacturers with primary focus on exports. To push the early adoption of EVs, the Centre has also allowed the deduction of interest on loans towards procurement of EVs, taken between April 1, 2019, and March 1, 2022, to the tune of Rs 1,50,000 (annual) from the taxable income of the individuals.
It is also important to note that states/UTs like Delhi and Maharashtra, among others, are also providing direct subsidies to the end-consumer on purchase. Further, many states are also offering lucrative fiscal incentives (either under the State Industrial Policy or a separate EV policies) for promoting the manufacturing of EV and EV infrastructure.
The Centre, as per the recent amendments to FAME-II, also plans to appoint EESL as an aggregator for the demand of three-wheeler EVs and electric buses, thereby providing the bulk order to the manufacturers of EVs and providing them a demand-boost.
All these policy steps being taken by the both the Centre and the states are likely to provide much required impetus to the EV industry and would help in a gradual shift towards EVs over the next few years.
With contributions from Mohit K Sharma, senior tax professional, EY India
Tax partner, EY Views are personal