It’s almost a year since the government stopped paying the FAME 2 (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles) subsidies for electric two-wheelers (E2W) on the basis of a series of emails sent by an anonymous sender alleging violation of the Phased Manufacturing Programme (PMP) guidelines by some firms. The PMP requires original equipment manufacturers or OEMs to procure an agreed quantity of parts from within the country. Since the charges were grave, the government decided to stop the subsidies till the investigations were over. And according to the Society of Manufacturer of Electric Vehicles (SMEV), more than `1,100 crore have been held back while the OEMs have already passed them on to their customers from their pockets.
The government is within its rights to investigate the charges. However, the inordinately long time being taken to investigate the matter is a cause for concern. Even after a series of investigation rounds, which involved stripping down the EV to the last component to determine its source of manufacturing location, the government is yet to reach a conclusion. In February, the ministry of heavy industries told the Rajya Sabha that all the complaint cases have been referred to the testing agencies for re-verification. This long process will hurt the industry as it is largely dominated by startups which may not have deep pockets. EV dealers are the worst hit due to the demand slowdown and have started to offer discounts to liquidate stocks. The same dealers were gleefully reporting an out-of-stock situation only a year back.
In the absence of subsidies for E2W, there has been a dampening of spirits among players. As reported by Financial Express recently, sales are already on the decline. In December and January, sales fell by over 10% to 64,300 from a high of around 70,000-75,000 in October and November. Sales in February are expected to be around the December-January levels. According to data supplied by the VAHAN portal, by the end of February, the E2W segment clocked 630,000 units in sales and is likely to close the current financial year at 700,000, which will be 30% less than the projection made by NITI Aayog of 1 million units. So, a success story seems to be getting derailed slowly. More importantly, the stoppage of subsidies has complicated other things for many in the industry. Capacity planning, product planning and fundraising plans have slowed down and securing working capital have become vital for survival. While fund-starved start-ups are the worst hit, two of the former market leaders in this space, Hero and Okinawa, are already far behind in their stated business expansion plans.
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India has had a history where the wheels of justice turn very slowly. The telecom adjusted gross revenue case is an example where the case went on for years, and the final decision that imposed a massive accumulated amount hurt weaker players like VI India very badly, so much so that it has had to give the government a 33% stake in lieu of repayment of dues. A sunrise sector like E2W has grabbed the attention of many startups. The government’s subsidy to the sector has also given an additional fillip to the industry. It’s time to wrap up investigations quickly, punish the guilty and start giving the subsidy again. The whole industry shouldn’t suffer for the crimes of a few.