24 July 2019 | Prantik Mitra
In March 2019, the Indian government announced the much-awaited phase II of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme after delaying its announcement for over two years. FAME-I was initially set until 2017 but was extended up to March 2019. FAME-II has a total budget outlay of INR 100 billion (USD 1.5 billion) until 2022 and focuses on public transport, demand aggregation and subsidies to encourage adoption of EVs.
FAME-I had a planned outlay of INR 8 billion in two years but only INR 5.8 billion was actually allocated in over four years. India’s EV market has been dominated by cheap, unregistered and uncertified three-wheelers. Two-wheelers and four-wheelers accounted for only 0.15% and 0.04% of total domestic sales respectively between FY 2015-19. FAME-II envisages a more holistic growth of the EV industry by providing support for essential building blocks including charging infrastructure, R&D and greater manufacturing indigenization.
Figure: Fund allocation under FAME India scheme, INR million
Source: Ministry of Heavy Industries and Public Enterprises
FAME-II proposes to spend INR 86 billion on upfront subsidies for purchase of EVs. Electrification of shared transport is rightly given a major push with buses to receive 40% of total subsidy amount (up to INR 5,000,000 per vehicle) and other commercial vehicles to receive 20% of total subsidy amount (INR 150,000). The jump in subsidy bill is large in comparison to FAME-I but it would still cover only 1.5 million vehicles until 2022 (2% market share).
NITI Aayog recently recommended phased introduction of commercial four-wheeler EVs rising from 2.5% in FY 2020-21 to 40% in FY 2025-26. It also recommended that all new vehicles sold 2030 onwards should be electrified. But with high cost of EV’s being a main market barrier and the Indian government being unable to support the market through a larger subsidy support, the target seems aggressive and unrealistic.
The recent budget has introduced some positive measures with a range of GST and direct tax benefits. But confusion about government targets for EVs is not helping the market. We believe that growth in the next few years would be restricted to public transport and fleet operators.