FAME-3 is coming; and here is what changes for EVs

The Union ministry of heavy industries is considering introducing a 50% domestic value addition (DVA) requirement and doing away with the phased manufacturing programme as part of its proposed Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles in India (FAME) III, according to two people familiar with the development. DVA is calculated based on the net selling price of a product and the landed cost of imported inputs.

Further, the heavy industries ministry plans to introduce an annual review of compliance with indigenization norms. “One thing is, there would be an annual check of the applicants. There would be DVA. There was no DVA in FAME so far; there was PMP. In the next phase of FAME, when it comes up, we would have DVA," said a person aware of the development.

Under PMP, the government offers a graded duty structure and a timeline for the graded implementation of the indigenization of components over time to discourage imports and boost demand for local products.

DVA is currently implemented under the production-linked incentive (PLI) schemes, wherein selected applicants need to apply for DVA certification, and only after they receive the certification do they become eligible for the incentive.

“DVA is a more refined concept. It’s much more stringent. We will keep it at 50%," one of the two people said on condition of anonymity.

Earlier this year, the government launched an investigation into complaints of non-compliance with PMP norms. The investigation found that six two-wheeler FAME II beneficiaries—Hero Electric, Okinawa Autotech, Ampere EV, Revolt Intellicorp, Benling India and AMO Mobility Solutions—violated the norms.

Following the investigation, the ministry asked these firms to return the wrongly claimed subsidies worth ₹469 crore.

While Revolt, Ampere and AMO Mobility have complied with the direction, Hero Electric, Okinawa and Benling are yet to pay their dues, another person said, also on condition of anonymity.

A Hero Electric spokesperson said: “Hero Electric had not only diligently followed the PMP norms in FAME II but had exceeded the DVA localization norms now being considered in FAME III. The recovery sought back by MHI relates to subsidies given to customers by Hero Electric’s own funds two years ago, a transaction that had obtained explicit written approval from MHI’s own certifying agencies, yet it seems to be disregarded somehow. We are currently engaged in discussions with the government to address this matter on a case-by-case basis, as our situation may differ from others who have already made payments."

Queries emailed to a spokesperson for Okinawa remained unanswered till press time. Benling could not be reached immediately. The ministry has warned the companies to repay the amounts or face legal action. Queries emailed to MHI also remained unanswered.

In July, a few companies, through the industry body Society for Manufacturing of Electric Vehicles (SMEV), reached out to the Prime Minister’s Office (PMO) and the heavy industries ministry seeking a waiver of the penalty and withdrawal of the notices.

Responding to a question in the Parliament earlier this year, the minister of state for heavy industries, Krishan Pal Gurjar, said the ministry had received 17 complaints regarding the misappropriation of subsidies under the FAME India phase II by some EV manufacturers.

“All the complaint cases have been referred to the testing agencies for re-verification. After examination of reports in respect of two OEMs (original equipment manufacturers), the models of these two OEMs have been suspended from the FAME scheme," the minister said in a written reply without divulging their names.

The government has also reduced the subsidy per kilowatt hour (kWh) of battery capacity under FAME II starting June. The total amount allocated towards providing incentives for such eco-friendly vehicles has been raised to ₹3,500 crore from the current ₹2,000 crore, but the subsidy per kWh of battery capacity has been reduced from ₹15,000 to ₹10,000 per electric two-wheeler.

The ministry formulated the FAME India Phase II scheme for a period of five years from April 2019 with a total budgetary support of ₹10,000 crore. This phase focuses on supporting the electrification of public and shared transportation, intending to provide incentives for 7,090 electric buses, 500,000 three-wheelers, 55,000 four-wheelers and 1 million two-wheelers, along with the creation of charging infrastructure is also supported under the scheme.

According to data from the National Automotive Board, so far under phase II of the FAME scheme, a total of over 1 million vehicles have been sold, including 968,000 two-wheelers, 1.15 three-wheelers and 14,231 four-wheelers.

On 30 June, Mint reported that the central government may triple subsidy allocation for EV purchases in the third edition of the scheme amid the rising popularity of EVs. However, it would be finalized after consultation with the finance ministry.

The first person cited above said that the ministry would soon send its proposal for the third phase to the finance ministry.