78 percent jump in FAME 2 subsidies outlay in Budget 2023 evokes mixed reactions from industry

Finance Minister Nirmala Sitharaman almost doubling FAME 2 Subsidies outlay with a 78 percent jump over FY23 allocations has evoked mixed reactions from domestic EV players.

Speaking to Autocar Professional, Sohinder Gill, Director General of industry body Society of Manufacturers of Electric Vehicles (SMEV) said, “Nothing has changed for the industry in the new allocations as it doesn't impact the overall outlay made by the government when the FAME 2 subsidy was introduced.”

FM Nirmala Sitharaman’s allocation of Rs 5,172 crore for FY24 is one of the steepest in the history of the scheme since it was introduced in 2019 with the Rs 2,898 crore allocated for FY23 being the second highest allocation. Commenting on the FAME 2 subsidy revision, Gill said, “The figure given in the current budget is a leftover budget of FY24, which was declared in 2019.

Gill is right in his assessment; the basket of FAME 2 allocation remains the same at Rs 10,000 crore when it was announced in 2019 with the government taking a step-by-step approach in its allocation over the years. In FY20 the government allocated 500 crore for FAME 2 which was revised to 318 crore in FY21. In FY22, the Government of India increased the allocation to 800 crore which was further revised to 2,897 crores in FY23 and to 5,172 crores in FY24.

Hemal Thakkar, Director of CRISIL Research, sharing his opinion on the higher outlay, said that for the last few years the Government of India has been increasing the FAME 2 subsidies outlay and this is good for the EV Industry. He added that the exemption of the plant and machinery along with the performance-linked incentive (PLI) will work hand in hand to reduce the cost of cell manufacturing and provide a “fillip to electric vehicle manufacturing with costs coming down in the long term.”

Higher allocations and unpaid subsidies put EV OEMS in a tough spot

Gill said that on the one hand, the government is showcasing higher allocations, but on the other hand, close to 1,200 crore of FAME 2 subsidies lie unpaid for around 12 manufacturers who represent 90 percent of the industry. “The delay is of six to twelve months and more than 12 OEMs who constitute 90 percent of EV volumes in FY22-23 are affected with the total pending dues that have crossed over 1200 crore,” he said.

Indian electric two-wheeler makers like Hero Electric and Okinawa are some of the largest players impacted by the subsidy challenges and have been passing on the subsidy component from their own pocket, Gill said.

A company official at India's Number Three L5 electric three-wheeler maker, Omega Seiki Mobility said that the last time the industry faced a challenge, a substantial amount of money was released by the government around July 2022. “As dues now are more than four months old pending since August, we are hopeful that the government will speed up the mechanism to ensure that industry members who are doing their business with good practices don't get penalised and cash flows don’t get impacted,” the official said.

However, representatives at the Ministry of Heavy Industry who are responsible for the dispensation of subsidies denied that there was any such delay. “There is no such delay on our end. Manufacturers are supposed to present information which is now independently validated and subsidies are given on time,” a ministry official told Autocar Professional.

EV makers welcome moves for higher allocation 

Another Electric bus manufacturer and mobility solutions provider GreenCell Mobility recently bagged an order from the Transport Department, Government of NCT Delhi for 570 electric buses. The company’s COO and Director of Finance Summit Mittal said that the challenge for FAME 2 Subsidies is only with electric two and three-wheeler manufacturers and that e-bus makers as well as passenger car makers are getting the subsidies on time.

Welcoming the government’s move to almost double the FAME 2 subsidy, Mittal said, “The increased outlay for FAME 2 subsidy shows this government's commitment for Net Zero which can only be achieved through clean and green mobility. OEMs need to be further incentivised for this and it will help to reduce costs of operations for EV makers.”

The Union Budget 2023 has allocated close to Rs 88,198 crore for climate-related measures. This accounts for 2.0 percent of total expenditure in the fiscal year 2024, compared to 0.9 percent in fiscal 2023.

Samarth Kholkar, CEO and Co-Founder of multi-brand EV retail firm BLive said, “The higher allocation of the FAME 2 subsidy will promote EV sales, especially in the two-wheeler and three-wheeler segment, and also give a push to passenger EV sales. However, we were also hopeful that the FAME 2 subsidy would be extended beyond its lifecycle as only Rs 300-odd crore would be left after the current allocation. The industry will need the government's push to move towards clean mobility.”

Auto component maker Steelbird international which makes specialised tyres for EVs and is a leading aftermarket provider also said the higher budgetary provision for FAME 2 subsidies will directly push the demand for EV-specific tyres in the aftermarket as replacement demand will increase substantially. Manav Kapur, Executive Director, Steelbird International said, “The FAME 2 subsidies’ revision and measures announced for skilling and research in AI, Robotics, 5G, Mechatronics, and 3D printing will trigger quality production across the sectors and the auto components industry will also benefit from incorporating these cutting-edge technologies in various operations.”

An assessment of the Union Budget by CRISIL has said more than two-thirds of climate expenditure this fiscal is capex, which is primarily going for investment towards energy transition under the Ministry of Petroleum and Natural Gas. “Expenditure on other initiatives is primarily revenue spending in nature as they are primarily in the form of subsidies for promoting green adoption by the private sector,” the CRISIL report says.