Industry
FAME slows down, auto PLI in fast lane
Summary
- The cut in allocation for FAME-II scheme comes on the back of a reduction in subsidy for electric two-wheelers last year
New Delhi: The government slashed the allocation for FAME, its umbrella scheme for a switch of electric mobility, by 44% for FY25 even as it hiked the corpus for the production linked incentive scheme for autos by over seven times.
The scheme for faster adoption and manufacturing of (hybrid and) electric vehicles (FAME), launched in 2015, is the government’s flagship scheme to encourage sale of electric and hybrid vehicles. The first phase of the scheme ran till 2019 and the second phase ends in March this year.
In FY24, ₹5,171.97 crore was allocated for the scheme and revised estimates show around ₹4,807.4 crore would have been spent by the end of the next month. In FY23, ₹2,402.51 crore was spent under the scheme. For the next fiscal, the allocation has been reduced to just ₹2,671.33 crore.
The government did not say if the scheme would be extended beyond this March but the low allocation for next year may signal intent to do so.
“The budgeted FAME II outlay for FY25 represents the residual allocation under the scheme, which forms part of the ₹10,000 crore initial allocation; timely rollout of new subsidy scheme remains key in accelerating electrification transition. The continuation of FAME II subsidies post-March 2024 is also likely to support adoption and raises hopes of continuation of subsidy support going forward," said Shamsher Dewan, senior vice president & group head, corporate ratings, ICRA Limited.
The reduction in allocation for FAME-II scheme comes on the back of a reduction in subsidies for electric two wheelers last year, following allegations that seven electric two-wheeler companies did not comply with localization norms. Sales of electric vehicles have gone off boil since then.
“The imminent expiration of the FAME II subsidy program by March 2024 sparked hopes for its extension. An extension would have solidified support for the EV industry," said Chakravarthi C, managing director, Quantum Energy.
At the same time, the outlay for the PLI scheme aimed at encouraging localization of futuristic vehicle technologies, was hiked more than seven-fold at ₹3,500 crore for FY25 from just ₹483.77 crore in FY24. The allocation for the PLI for advanced chemistry cell and battery storage also went up from ₹12 crore in FY24 to ₹250 crore. Even after two years of being operational, the scheme is stuck in a limbo due to a lack of clarity on the procedures for claiming incentives. Less than ₹500 crore worth of disbursals have happened.
“The disbursement of funds under PLI schemes would support cash flows and credit metrics for the Automotive OEMs and ancillaries," Dewan of ICRA added. “With enhanced outlays, PLI scheme aims at fast-tracking investments in technology and will also increase localization of auto components, accelerate investments towards a local EV ecosystem."
