Is FAME II Scheme Doing More Harm Than Good For E-Mobility?

In order to encourage the adaptability of the government has launched the second phase of FAME scheme (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles) to incentivise production of electric vehicles in March. However, a trade body representing the interests of electric vehicle makers said that the policy requirements have made it almost impossible for any company to avail the schemes.

In its policy, the government has proposed to invest INR 10,000 Cr ($1.4 Bn) over three years to support 10 Lakh two-wheelers, 5 Lakh three-wheelers, 55K four-wheelers, and 7K buses that operate on lithium-ion batteries or other electric power-trains.

The second phase of FAME is expected to affect the two-wheeler segment the most. On April 8, analytical company Crisil in its impact note said that the electric two wheeler industry may experience turbulence in the initial phase of the FAME-II. It also predicted that almost 95% of the electric two wheeler models which are being produced now will not be eligible for incentives under FAME II.

This is mainly because of a technicality which specifies that to avail the subsidy, e-scooters need to have a range of atleast 80 km. Most e-bikes in India currently have a range of around 60 km.

On April 8, in a letter addressed to NITI Aayog CEO Amitabh Kant, the electric vehicle association Society Of Manufacturers of Electric Vehicle (SMEV) has pointed out the loopholes in the FAME II policy.  

Some of the major issues raised by the association are:

1. 1. 50% localisation requirement: As a part of FAME II, the companies who produce 50% localised vehicles can only avail the incentives. This makes almost impossible for any manufacturer to avail the scheme as Indian component suppliers are not yet ready to manufacture components for the current low volume of EV. Further, the process of safety tests, checking, vehicle testing will take at least 1-1.5 years.  Thus it is a wrong move to link incentives with localisation
   2. 80km Range: This requirement will unnecessarily add more batteries which will not be needed by almost 90% of the users. A range of 60km will be enough for two wheelers
   3. Cap of 20% on ex showroom price: This limit may adversely affect the affordable bike segment. For example, an electric bike with INR 70K ex-showroom price will receive only INR 14K subsidy, even if it is eligible for more subsidies under other government schemes
   4. Reduction of incentives: Under FAME II, the subsidy has been reduced to INR 12K-18K for 90% of the city speed electric bikes

Earlier in March, the association had said NITI Aayog and the Department of Heavy Industry that the city-speed electric two-wheelers have become costlier by INR 10K- INR 12K. This is because the government reduced incentives to INR 10K per kWh of battery capacity from INR 22K per kWh, given under the first phase of the FAME scheme.

This may cause the sale of electric two wheelers to drop. SMEV said.

In its letter, the SMEV has demanded that :  

1) EV subsidy should not be linked with localisation and exshowroom price

2) Keeping 60km range eligibility for electric two wheelers

3) Increase the per kwHr subsidy to INR 20K

Problems With Govt’s Current Policy On E-Mobility

Electric two wheelers and three wheelers are currently leading the emobility revolution in India. There are currently more than 1.5 Mn e-bikes and e-rickshaws operating in the country. By 2030 the sale of electric two wheelers are reportedly expected to cross 2 Mn.

As of September 2018, it was reported that electric two wheelers recorded 138% growth with 54,800 units sold in FY2017-18 compared to 23,000 in the previous year. The reason behind the popularity of the two wheelers was its affordability and use for short distances which reduced the fear of range anxiety.

However, with reduced incentives, the prices of the electric two wheelers are slated to increase which may bring down its sales.

FAME II’s increased focus on the public vehicle can also prove to be a problem. For instance, only cab aggregators who are operating a commercial fleet of four wheelers can avail the incentives meant for cars. Though it is absolutely necessary for the government to encourage adaptation of electric vehicles for public transportation, the reduced attention for private vehicles may slower the sale of the vehicles.

Meanwhile, think tank Niti Aayog has recommended the government to accelerate the depreciation benefit for cab operators to change nearly one-fifth of their fleet into electric vehicles.