How Will the Reduction in Subsidies Affect Electric Two-Wheeler Sales and Industry Growth under the FAME India Scheme?

The Central Government has recently announced a modification to the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) scheme, reducing subsidies for electric two-wheelers. Effective June 1, 2023, the revision decreases the subsidy on electric two-wheelers from Rs 15,000 per kWh to Rs 10,000 per kWh, lowering the maximum subsidy cap from 40 percent to 15 percent. This decision has significant implications for the electric two-wheeler segment, as sales have been declining since their peak in March 2023.

FAME India Scheme: Encouraging Eco-Friendly Vehicle Adoption

The FAME India scheme was launched in 2015 as part of the National Electric Mobility Mission Plan, aiming to incentivize and promote the production and sales of environmentally friendly vehicles. The initial phase of the scheme spanned four years and concluded on March 31, 2019. Following its success, the second phase, FAME 2, commenced on April 1, 2019, with an extended timeline until March 2024. The government allocated Rs 10,000 crore in subsidies to facilitate the adoption of electric vehicles under the FAME 2 scheme.

Sales Pressure & Subsidy Reduction Impact

Since April 2023, electric two-wheeler sales have experienced a decline after reaching their highest monthly sales in March 2023, totaling 85,793 units. According to data from the Vahan portal, sales figures for May 2023 stand at approximately 39,000 units. This downward trend in sales has prompted concerns within the industry and raises questions about the impact of the recent subsidy reduction under FAME India Phase II.

Industry Reactions & Concerns

Industry experts have expressed apprehension regarding the government's decision and the potential repercussions on the electric two-wheeler market. FinancialExpress.com quoted Uday Narang, Founder & Chairman of Omega Seiki Mobility, emphasizing the need for consistent and coherent government policies, citing the significantly higher subsidies provided by other countries to promote electric vehicle adoption. He cautions against rapidly changing policies, urging a more stable approach.

Sulajja Firodia Motwani, Founder of Kinetic Green, welcomes the shift toward a subsidy-free future for the industry. Speaking to FinancialExpress.com, she however raises concerns about the revision's timing, suggesting that the subsidy reduction could hinder the attainment of cost parity between electric and internal combustion two-wheelers. The subsidy played a crucial role in bridging the price gap and making electric two-wheelers more affordable for consumers.

Government's Perspective & Future Outlook

The government previously indicated that subsidies might be discontinued once the target of one million electric vehicle sales in four years was achieved. The subsidy reduction was implemented to manage the budget while continuing to support the growth of electric two-wheelers. Although the per-unit cost for consumers may increase, a higher outlay will enable the government to support a greater number of vehicles, benefiting a larger customer base.

Experts' Recommendations & Industry Evolution

Several experts argue that the electric vehicle sector, particularly two-wheelers, no longer requires extensive subsidies. They point out that more than a million electric vehicles have already been subsidized, and many state governments offer additional incentives. As a result, they suggest gradually tapering down subsidies for two-wheelers while extending support to new vehicle categories like quadricycles, e-cycles, commercial vehicles, and private buses.

VoltUp Co-Founder & CEO Siddharth Kabra has stressed the need for taking a holistic view of how the EV sector can grow post the reduction in FAME subsidy. "With the reduction of subsidy to 15 per cent, it is clear that the electric vehicle ecosystem in India is growing rapidly and there is demand. While the immediate impact of subsidy reduction will be a rise in price and lower sales, the government in a way is allowing the industry to become independent," he told ET recently.