Govt reduces FAME-II Subsidies for electric two-wheelers

This was the result of an investigation has revealed that nearly half of the electric two-wheelers under the FAME-II scheme were accompanied by false claims of localization

May 30, 2023

Starting June 1st, electric two-wheeler manufacturers will receive a reduced subsidy of up to INR 22,500 per vehicle, down from the previous cap of INR 60,000

Prices for electric two-wheelers may increase by approximately INR 25,000-40,000 from June 1st

There may be a temporary decline in demand for electric vehicles during this period

Consequently, the government has increased the budget allocation for bus promotion under the FAME-II scheme by INR 800 crore

The Ministry of Heavy Industries (MHI) has reduced the number of eligible two-wheelers under the Faster Adoption and Manufacturing of Electric (and hybrid) vehicles in India phase-II (FAME-II) scheme from approximately 989,000 to just under 564,000.

Additionally, starting June 1st, the government will substantially decrease the subsidy provided to customers purchasing electric two-wheelers under the FAME-II scheme. The subsidy will now be limited to 15% of the ex-factory price, compared to the previous ceiling of 40% of the ex-showroom price. Furthermore, the new subsidy rate will be INR 10,000 per kWh of battery capacity, lower than the earlier incentive of INR 15,000 per kWh of battery capacity for manufacturers. 

This was the result of an investigation which revealed that nearly half of the electric two-wheelers sold under the Indian government’s INR 10,000 crore electric vehicle (EV) promotion scheme were accompanied by false claims of localization. 

The investigation, conducted by the Automotive Research Association of India (ARAI), discovered that several companies relied on imported components such as electric motors, controllers, and onboard chargers, despite providing incorrect information regarding the local sourcing of their vehicles. The FAME-II subsidies were contingent on applicant companies adhering to a phased manufacturing plan (PMP), which required a gradual increase in the use of domestically sourced parts. 

The FAME-II scheme aimed to subsidize almost 1 million electric two-wheelers by April 2024.

Impact

The budget allocation for electric two-wheelers has been increased to approximately INR 3,500 crore. However, to accommodate a greater number of vehicles, the subsidy per unit has been reduced.

Starting June 1st, electric two-wheeler manufacturers will receive a reduced subsidy of up to INR 22,500 per vehicle, down from the previous cap of INR 60,000. As a result, buyers should anticipate higher prices for electric two-wheelers. It is projected that prices may increase by approximately INR 25,000-40,000 from June 1st.

Consequently, there may be a temporary decline in demand for electric vehicles during this period. 

Buses attracting investments

After discovering irregularities under the FAME-II scheme, the MHI has shifted its focus to prioritize the promotion of electric buses over two- and three-wheelers. Media reports indicate that the government has increased the budget allocation for bus promotion under the FAME-II scheme by INR 800 crore, resulting in a total allocation of approximately INR 4,300 crore.

Sources: Economic Times | Mint

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