Govt of India mulls fresh infusion of Rs 1500–2000 crore in FAME 2 subsidy for two-wheelers

The Ministry of Heavy Industries is planning to increase the FAME 2 subsidy outlay for the two-wheeler segment by Rs 1500 to Rs 2000 crore to sustain the momentum for segment penetration before the scheme runs out by the end of FY24.

Following a brief disruption in penetration after the subsidy correction a few months ago, demand for electric two-wheelers has rebounded, and the government may soon exhaust the Rs 5124 crore outlay. The plan to infuse funds is that the scheme should have enough funds to last until March 2024; hence, an increased outlay is being sought.

The proposal is currently being discussed with key stakeholders, including the Finance Ministry, Niti Aayog, and MHI as the nodal ministry.

As of August 2023, nearly 30 lakh electric vehicles were registered in India, with one-third of these vehicles sold in the first half of 2023.

Subsidies have already been distributed to approximately 80% of the scheme's target of one million E2Ws, according to senior officials at the Ministry of Heavy Industries. "Strong growth in electric two-wheelers, followed by a spike in sales of electric three-wheelers, passenger car EVs, and a good uptick in passenger EV fleet sales, is leading to the FAME 2 subsidy kitty shrinking ahead of its time," a senior government official told Autocar Professional. 

Government sources said that they want the scheme to complete it's full term. 

The electric scooter sales for the first eight and a half months of 2023 are close to 6 lakh, whereas overall EV sales are pegged at more than 1 million units, showing strong growth in sales of electric vehicles.

The Ministry has targeted sales of 1 million electric scooters by 2024 and continuing the subsidy will be critical to reaching this mark.

With more electric two-wheeler options emerging with newer, lower-priced models as the festive season approaches, we will see a faster conversion from ICE to EVs, and demand is likely to increase further, putting pressure on budgetary outlay, government officials said.

OEMs have to compulsorily undertake DVA or domestic value addition to qualify for the FAME 2 scheme. To qualify for the scheme, at least 50% of the vehicle value for electric two-wheelers, three-wheelers, and four-wheelers must be added in India, while electric buses must have 40% localisation. 

The Union Minister of Heavy Industries Mahendra Nath Pandey stated that the government is following through on its promise of sustainable transportation solutions in India, and electric two-wheelers are leading from the front.

"As demand for E2W grows, the government is committed to providing the industry with the support it needs to ensure sustainable growth and reduce carbon emissions," Pandey added.

MHI increased the FAME-2 subsidy budget for electric two-wheelers from Rs 2898 crore to Rs 5,172 crore in FY 22-23, resulting in approximately 710,000 electric two-wheelers receiving FAME-2 subsidies by the end of 2022. 

The FAME 2 scheme was approved with an outlay of Rs 10,000 crore for a three-year term starting April 1, 2019.

The total subsidy provisioned during the launch was Rs 10,000 per kWh. However, due to low demand for electric two-wheelers during COVID-19, the subsidy was increased to Rs 15,000 per kWh.

This was rolled back to Rs 10,000 per kWh in June 2023, with the caveat that the maximum subsidy cap was reduced from 40 percent to 15 percent for vehicles up to Rs 1,50,000 as the maximum ceiling price for the vehicle.

According to industry players, India will need incentives of at least Rs 1.65 lakh crore over the next seven years to meet its 2030 target.

According to government sources, nearly Rs 1,000 crore in unspent allocation for electric three-wheelers was added to the FAME2 subsidy account in June, which is now nearing the end of its life.

At the recent G20 4th Energy Transitions Working Group Meeting, G20 Sherpa Amitabh Kant stated, "Two-wheelers account for more than 75% of India's total vehicle population, with the industry aiming for complete electrification of two- and three-wheelers by 2030."