Govt must extend the FAME II scheme lifeline to accelerate EV adoption

FAME II, EVs, India, sustainability, EMPS
The EMPS scheme offers subsidies for electric two-wheelers and three-wheelers, but with lower caps compared with FAME-II.

As the deadline for the FAME II scheme swiftly approaches, the Parliamentary Standing Committee on Industry has proposed extending the government’s subsidy program under the National Electric Mobility Mission Plan (NEMMP). This Wednesday, the committee suggested various measures to enhance electric vehicle (EV) adoption in India. They highlighted the necessity of prolonging the Faster Adoption and Manufacturing of Electric Vehicles (FAME-II) India Scheme by three years to achieve this goal. The Union government’s FAME scheme, aimed at boosting EV sales, is set to expire in March 2024.

In June, the central government reduced subsidies for electric two-wheelers. The report on Promoting Electric Vehicles now advocates not only reinstating these subsidies but also expanding them to include private four-wheelers and quadricycles. It also recommends mandating EVs in public transport, logistics, and delivery sectors.

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This aligns with the industry’s requests for sustained government support through the FAME scheme. Many believe that the automobile industry’s transformation hinges on the continuation of FAME. The 324th report edition also emphasised the need for decisive action towards electrifying the transport sector to reduce carbon emissions.

FAME II pivotal to EV dreams

FAME II, initiated in April 2019 with a budget of Rs 10,000 crore for three years, has seen only Rs 5,294 crore spent as of December 2023, resulting in the sale of 11.79 lakh EVs. The second phase of FAME does not offer direct incentives to manufacturers but reduces the upfront purchase price for consumers of both hybrid and electric vehicles. However, the committee notes that high ownership costs remain a barrier and recommends lowering the goods and services tax to address this.

The government should also consider further reducing the GST on Lithium-ion batteries, essential for EV production. Addressing the financing challenges, the report suggests including EVs in the Priority Sector Lending (PSL) category until a 30% penetration rate is achieved by 2030, supporting India’s net-zero emissions goal.

As global efforts towards sustainability intensify, India is also contributing. The committee advised the Ministry of Heavy Industries (MHI) to study battery standardisation and develop a robust battery swapping policy to enhance consumer confidence and attract foreign investment. Stable policy environments are crucial for attracting foreign direct investment, and frequent changes in EV policies can create market uncertainties.

Policy Circle has previously discussed the environmental impact of EVs, noting that their entire lifecycle, from production to charging, has a significant carbon footprint. The committee’s report asserts that EVs’ environmental benefits depend on powering charging stations with solar energy.

Pollution is a primary concern worldwide, and India is no exception, with several cities frequently ranking among the most polluted globally. The committee recognises this and stresses the need for sustainable transitions. To encourage EV adoption, the government should consider extending incentives under Section 80EEB.

Addressing climate change and pollution is a global priority. Although crude oil-based vehicles significantly contribute to global warming, EVs are crucial in mitigating climate change. While EV sales in India have surged, exceeding one million units in 2022, they still represent only 4.7% of total vehicle sales. The FAME scheme has been instrumental in increasing EV penetration and nurturing the industry. It is vital that the government continues this incentive-based policy until the market fully matures.

Indian EV manufacturers face increased scrutiny regarding their eligibility for FAME subsidies due to concerns over insufficient domestic value addition. Some have been accused of using imported parts or outdated battery technology. Manufacturers must ensure compliance and avoid malpractices to maintain government support.

Range anxiety remains a major deterrent for potential EV buyers. There is a need for coordinated investment in a nationwide network of fast-charging stations, especially in Tier-II and Tier-III cities. The schemes should address access to charging facilities like apartments and workplaces.

Transitioning to EVs also necessitates training technicians in servicing electric motors, batteries, and other technologies. The government should collaborate with industry and training institutions to develop targeted skill development programmes to prevent a “technician gap” as EV adoption expands.

The scheme also needs to adequately address affordability concerns for four-wheelers. Lowering GST on batteries is a positive step, but further financial incentives may be needed, especially for middle-class buyers looking to purchase electric cars. Exploring innovative financing models like leasing or battery buy-back schemes can improve affordability.