FAME2 effect: SMEV writes to Finance Minister proposing creation of Rs 3,000 crore rehabilitation fund for EV OEMs

The registered association representing Indian manufacturers of electric vehicles SMEV (Society of Manufacturers of Electric Vehicles) has today written to the Minister of Finance, Government of India, proposing the creation of a Rs 3000 crore Rehabilitation Fund to revive and sustain operations of OEMs which have been affected by the recent FAME subsidy blocks.

SMEV has maintained that the total amount of subsidies withheld and still due to various E2W OEMs amount to over Rs 1200 crore. The industry has been awaiting the funds for over 18 months exclusive of the interest.

Electric two-wheelers in India have got costlier from June 1, 2023 as the government of India has revised the subsidy on the FAME India (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India) Scheme to Rs 10,000 per kilowatt per hour (kWh) as against Rs 15,000/ kWH. Furthermore, the cap for incentive has been brought down to 15% of the two-wheeled EV’s ex-factory price as against 40% benefit extended earlier. That's a 37.5% cut, which will easily translate into higher vehicle prices.

Sohinder Gill, Director General – SMEV, commenting on the proposition said, “The cumulative effect of the subsidy blockade, the claim on older subsidies and the refusal to allow future sales has been devastating on start-ups and first movers in the EV 2W segment. Many of these companies will not be able to come out of the financial stress caused by these actions. In fact, their post-resolution existence is also a matter of time. It is therefore our considered, sincere, suggestion that the Ministry of Finance may consider the Rehabilitation Fund to help the affected companies sustain for the next year or two at least.”

The collapse of the subsidy scheme has not only caused operations to stall, and sales to dry up, but acute pressure had been caused to Dealerships, even customers whose bookings had to be cancelled, the letter said.  If we add the man-days lost, opportunity loss, market share depletion, and the reputational damage collectively the figure would cross the Rs 30,000 crore mark on a conservative estimate up to now.

The worst impact has been on the investor community, which has become extremely averse to the sector owing to the frequent inimical actions against OEMs.

Banks too have been unwilling to extend credit in fact; banks are suffering collateral damage since companies are unable to service loans under the circumstances.

SMEV has proposed to work closely with the Finance Ministry to determine the contours of such a fund, which could be in the shape of a grant; or a subvention scheme that could work as a guarantee mechanism for lenders and could be monitored by a committee.