FICCI urges Ministry of Heavy Industries to extend EV subsidy for five years

The Federation of Indian Chambers of Commerce and Industry (FICCI) – the industry advocacy group has requested the Ministry of Heavy Industries (MHI) to extend the subsidy benefit for electric vehicles for another five years. 

The Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles scheme or FAME version 2 which expires in April 2024, should be extended with a version 3, FICCI has asked. 

With current EV penetration at 5 percent, FICCI predicts that unless the government extends the scheme, EV prices will rise by 25 percent on April 1, 2024, undermining the government's decarbonisation goals of converting 30 percent of all modes of transportation to EVs by 2030.

FICCI has urged the government to extend the scheme for five years, with a three-year review, as "a sudden discontinuation of price incentives would result in an increase in the prices of EVs by up to 25 percent," the draft proposal sent to MHI notes. 

The government rolled out the first phase of the FAME scheme in 2015, followed by the second phase in 2019. FAME I came with a budgetary outlay of Rs 895 crore, while FAME 2 was rolled out with a much bigger outlay of Rs 10,000 crore, for a period of three years ending 2022. The scheme was however extended to March 2024 following the COVID-19 outbreak. 

Currently, the FAME subsidy on registered electric two-wheelers amounts to Rs 10,000 per kWh with a cap of 15% of the ex-factory price of vehicles. The scheme aims to support one million electric two-wheelers.

According to Sullaja Firodia Motwani, chairperson of FICCI's EV committee and Vice Chairman and founder of Kinetic Engineering Limited, the current price disparity between ICE and EVs minus subsidies, ranges between 40 and 130 percent.

"The continuation of demand incentives or subsidies is critical to closing the price gap." Fame 3 is required to maintain customer interest in EVs and increase penetration over the next few years, according to Firodia's draft note.

The proposal also acknowledges that favourable policies, particularly the existing FAME-II scheme of the Government of India, have played an important role in stimulating demand by lowering the upfront costs of EVs. This has contributed to positive momentum and is encouraging EV adoption in the country.

"Despite having begun well, we are nowhere close to being half done. We are hopeful that the Indian government will continue to support electric vehicles, which will significantly reduce pollution in our country and contribute to fuel security. India's automotive leadership will be possible only through its dominance in EVs as a leading consumer and global provider of EV technologies," added Motwani.

Following extensive consultation with stakeholders, the industry's governing body has also called for the FAME 3 scheme to support emerging green technologies such as hydrogen and fuel cells.

According to FICCI, while FAME 2 supported demand creation for priority segments of public transportation with electric vehicles (buses, three-wheelers, and taxis), which should be continued, FAME 3 could also include medium- to heavy trucks and even private transportation commuters through e-buses to be incorporated in the scheme.

“If demand incentives as suggested are provided for the next five years, it will support the adoption of more than 30 million EVs across segments and also help achieve the target of 30 percent electrification of India's transport sector," added a note from FICCI.

As part of its recommendations, FICCI has proposed that FAME 3 continue to support incorporating plug-in hybrid electric vehicles (PHEVs) and strong hybrid vehicles (SHEVs) as part of decarbonising passenger cars as provided by the FAME 2 scheme.

To ensure that India can roll out affordable EVs, FAME 3 could continue the government Phased Manufacturing Program (PMP) incentive calculation and localisation norms to be extended under the existing FAME II quality parameters, FICCI has suggested. 

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