Subsidies on e-scooters to slide to ₹5,000 per scooter in Oct 2025

The latest edition of India's electric vehicle (EV) subsidy scheme has drastically cut incentives per vehicle that earlier sparked a proliferation of EVs, even as the government remains optimistic about achieving its EV penetration targets.

Electric scooter subsidies will shrink to ₹5,000 by 2026, half the current amount and only a fraction of the subsidy at the scheme's peak, details of the PM E-Drive scheme reviewed by Mint showed.

Manufacturers cite the scheme's steep costs of complying with rules on localization, component sourcing and vehicle performance. The cost of meeting these requirements may exceed the meagre subsidy benefit, diminishing the scheme's attractiveness, they said.

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“There is a point where the administrative and compliance costs outweigh the benefits of such small subsidies," senior executive from a leading electric two-wheeler manufacturer said on the condition of anonymity. “For many manufacturers, particularly smaller players, opting out of the scheme may make more financial sense than staying in."

The EV demand incentive scheme's first two instalments had amped up EV sales. PM E-Drive is the third phase of the programme, earlier called the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme.

“Most of the large electric two-wheeler OEMs have publicly stated that they are ready to deal with a no-subsidy scenario. A tapered-down reduction of subsidy was on the cards, and the subsidy reduction is on expected lines with ₹10,000 per vehicle (initially), and ₹5,000 per vehicle post that (after 2025)", said Jay Kale, executive vice president, Elara Capital.

First phase

The government allocated ₹895 crore for the first phase of FAME which ran from April 2015 to March 2019, offering a demand incentive of up to ₹10,000 per kWh on electric two-wheelers. The cap for scooters ranged between ₹18,000 and ₹22,000, while that for electric motorcycles was ₹35,000.

The scheme's second phase from April 2019 to May 2021, which was extended until March 2024, witnessed a surge in allocated funds to ₹11,500 crore. The demand incentives per kWh also rose to ₹15,000 for e2Ws, with a cap of ₹60,000. This fuelled significant EV adoption, particularly in urban centres, where electric two-wheelers came to be seen as cost-efficient and environment-friendly.

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However, incentives for electric scooters are set to plunge under PM E-Drive, which starts in October 2024 and extends till 2026. The initial subsidy will drop to ₹5,000 kWh per scooter with a cap of ₹10,000, and by October 2025, it will halve further to just ₹2,500, with a cap of ₹5,000 per scooter. The steep reduction throws up challenges for OEMs to maintain price competitiveness.

"Subsidies are always welcome," said Rakesh Sharma, executive director of BajajAutoLtd, while noting that they do distort investment and buying decisions. "Structural schemes like production-linked incentives are more beneficial because they funnel the investment the right way. We are not going to demand continued subsidies because it cannot sustain forever. Even without subsidies, EV adoption might slow down a bit but it'll still happen," Sharma added.

Changes across segments

Two-wheelers are not alone—other segments are also set to face changes.

Electric three-wheelers (e3W), which received incentives up to ₹10,000 per kWh under FAME II, will see this drop to ₹2,500 per kWh by 2026. Electric four-wheelers (e4W) are already shut out of EV subsidies. Meanwhile, subsidies for electric buses, which played a key role in promoting green public transportation, will drop from ₹20,000 per kWh under FAME II to just ₹10,000 under the new scheme.

However, the government remains optimistic about achieving its EV penetration targets. By the scheme's end in 2026, the government aims to support the sale of 28 million EVs. FAME II scheme had already enabled the sale of 1.6 million EVs by September 2024, exceeding initial projections.

Also read |  Slashed subsidies to cause e-two-wheeler sales to ebb

“When I first came to the ministry, it looked difficult that the industry would even meet FAME-II targets. But not only did the industry use up the entire ₹10,000 crore corpus, we had to sanction an additional ₹1,500 crore to cater to the demand", Kamran Rizvi, secretary, heavy industries, said at an event to mark the success of the FAME-II scheme on Wednesday.

Two-wheelers have been the dominant segment within EV sales, thanks to the affordability and ease of use in congested urban areas. However, with the diminishing incentives, industry observers predict that sales growth will largely depend on technological advancements, cost reductions through localized manufacturing, and state-level incentives that may supplement the shrinking central subsidies.