Govt dithers on subsidy, EV makers fear losing fame

India is likely to follow a global trend of lowering EV subsidies, say officials. (Photo: Mint)
India is likely to follow a global trend of lowering EV subsidies, say officials. (Photo: Mint)

Summary

  • Automakers are lining up affordable vehicles, slashing prices to lure buyers as sales stagnate

NEW DELHI : The government has yet to take a call on whether to extend the FAME-II (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) incentives beyond 31 March, two officials privy to the discussions said, even as electric vehicle makers seek certainty on continuation of the scheme that aims to promote clean mobility in the country.

The officials cited a global trend where electric vehicle subsidies have been tapering off in major economies, adding that the same shall be done in India. “As of today, there is no FAME-II beyond March 31 and the government is yet to take a view on whether there should be a FAME-III", one of the officials cited above told Mint. “But what is certain is subsidies will come down across the board—for every vehicle segment," the second official added. An inter-ministerial committee, with the heavy industries ministry as the nodal agency, is currently evaluating the proposed incentive scheme that will likely replace or extend FAME-II.

While demand-side subsidies, which lower the price of a vehicle for a customer, for EVs are unlikely to come to a complete halt, their quantum will be significantly reduced in the new scheme, which the ministry of heavy industries has envisioned as an extension, or “mirror" of the existing 10,000 crore FAME-II scheme.

The move will be in line with the government’s moves to gradually reduce subsidies. However, the officials cited above said that the timeline for this reduction will now be tighter than anticipated earlier. That is, the new scheme is likely to have a smaller outlay for a two-three year period, instead of five years.

From June 2023, the Centre significantly cut the subsidy on electric two-wheelers to customers under its FAME-II scheme—from a ceiling of 40% of an electric two-wheeler’s ex-showroom price to only 15% of its ex-factory price. Sops are now offered at the rate of 10,000 per kWh of battery capacity in the vehicle, lower than the 15,000 per kWh of incentive firms availed earlier.

However, with just a month-and-a-half to go before the scheme comes to an end, industry executives Mint spoke with said lower incentives will slow EV adoption, which has already been stagnating. Moreover, the lack of clarity on what contours the changed demand incentive scheme will have is disrupting their business plans, as ecosystem players will have to grapple with stock billed and registered at prices under the current scheme.

“Having enough lead time and certainty are important not just for original equipment manufacturers but also for the ecosystem... depending on the depth of the cut, adoption will slow down, it is already at stagnation levels," Rakesh Sharma, executive director, Bajaj Auto, told Mint. “The subsidy quantum in itself is less important than the early clarity of it, as it allows lead time for the supply chain including dealers to calibrate operations. We are in touch with multiple levels of different ministries. FAME is changing for sure, though a firm decision is yet to be taken. Our response will need to be decided quickly based on the quantum of reduction and anticipated competitive response," Sharma added.

“We’re awaiting clarity from the government regarding the future of FAME subsidy. We advocate continuation of subsidy, with a gradual year-on-year reduction. While the industry is not entirely reliant on subsidies for survival, discontinuation could result in one or two years of stunted growth, pushing the industry further away from our targets," Ravneet S. Phokela, chief business officer, Ather Energy, told Mint.

Amid stagnating EV sales, automakers have been lining up affordably-priced vehicles, and have been cutting prices to appeal to a wider set of consumers and revive business.

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