Govt Cuts FAME-II Incentive Cap, Demand Incentive For EV Two-Wheelers

After months of controversy around localisation norms, the Centre has reduced the incentive cap and demand incentive for electric two-wheelers under the second phase of the Faster Adoption and Manufacturing of Electric Vehicles (FAME-II) scheme.

The Ministry of Heavy Industries has cut the incentive cap from 40% of an electric two-wheeler’s ex-factory price to 15%, according to the government’s notification on Sunday (May 21). Further, the ministry has also slashed the demand incentive from INR 15,000/kWh to INR 10,000/kWh under the new changes.

These changes will be in effect from June 1, 2023.

The notification on FAME-II incentive changes confirms the media reports from last week, which emerged after a government meeting with stakeholders of 24 electric two-wheeler original equipment manufacturers (OEMs) registered under the FAME-II scheme on May 16.

According to media reports, the stakeholders and the government had reached a consensus on the aforementioned changes.

Reports also suggested that the government also aims to increase the allocation for two-wheeler EVs under the INR 10,000 Cr scheme to INR 3,500 Cr from INR 2,000 Cr by transferring the unutilised subsidies earmarked for three-wheeler and four-wheeler EVs. However, the latest notification did not mention anything regarding the change in the corpus of the scheme.

The issue of FAME-II’s extension has not been discussed either. For now, the scheme is set to end on March 31, 2024.

The industry has expressed apprehension about the pricing of the two-wheeler EVs post the reduction in subsidy. However, it has been noted that increasing the corpus will also benefit a larger number of customers in general.

To recap, the government has issued INR 5,108.54 Cr in incentives under the FAME schemes so far, per the Ministry of Heavy Industries website.

The issues around the FAME-II scheme also impacted EV registrations in April, as the month saw a 23% month-on-month (MoM) decline. A total of 66,410 two-wheeler EVs were registered in April as against 86,187 units in March.

The government’s move comes after many two-wheeler EV OEMs were discovered to have allegedly failed to meet the localisation norms underlined under the scheme. 

Close to 18 OEMs were under the government scanner, including the likes of Ola Electric, Ather Energy, Hero Electric, and Okinawa Autotech for alleged violations of localisation norms and price manipulation to avail subsidies under the FAME-II scheme.

Six of the 18 companies under investigation have reportedly been asked to pay around INR 500 Cr in penalties. Inc42 earlier reported that Hero Electric and Okinawa have been reportedly slapped with a total fine of INR 249 Cr. While Hero Electric did not respond to Inc42’s queries, Okinawa denied getting any such notices.

As for price manipulation, the likes of Ola Electric, Ather, TVS and Hero MotoCorp will have to cough up refunds to customers who bought specific EV models.