FAME-II – Govt. Wants Transparency

The Union Government has reiterated its commitment to accelerate the transition to e-mobility and has promised to release the stalled incentives to all electric two-wheeler makers if the latter come forward to obtain a clean chit in the ongoing investigations into misuse of funds that were deployed to enhance the shift towards electric vehicles. 

The EV manufacturers have already submitted their representations with the Ministry of Heavy Industries that sent recovery notices for alleged default of the FAME (faster adoption and manufacturing of hybrid and electric vehicles) schemes. Only Hero Electric and Okinawa have held on to their positions that there was no wrongdoing on their parts. 

Govt. keen to carry forward Fame-II scheme

Meanwhile, a report published in the ET quoted an unnamed government official to suggest that the government was keen to support the industry to shift towards cleaner mobility so long as they complied with regulations and not take “undue advantage” of its flagship incentive schemes to promote use of electric vehicles. 

Readers would recall that after the government stopped the subsidy payments, pending the probe, OEMs kept paying out of their own pockets to keep up the sales. It’s nearly a year after the problem began, but the issue appears to be getting murkier. 

For the records, the IInternational Centre for Automotive Technology (ICAT), one of the official testing agencies, has cleared six E2W OEMs and said that no “serious” violations of localisation norms had been found. It also said that the government would soon start disbursement of subsidies, but refused to clarify the issues surrounding other OEMs and whether they were indeed indulging in subsidy misappropriation.

What’s the challenge and where is it going?

At the same time, another set of E2W OEMs began offering a refund on some accessories such as chargers sold to customers bundled with the vehicles as these apparently violated subsidy norms. Meanwhile, yet another set of OEMs appear to be undecided on which way to move as there is a probability that they too may be asked to pay back the subsidies already availed. 

The subsidy disbursals valued at over Rs.1,500 crore to two-wheeler makers was discontinued last year after whistle-blower allegations that the industry was claiming them without meeting the local sourcing norms. Simply put, they were importing cheaper Chinese products, assembling them locally and then claiming subsidies. 

Industry sources claim that the stalling of these subsidy payments resulted in working capital shortages which impacted the industry’s growth and sales. Of course, it begs the question as to how much of the subsidies were these manufacturers taking into account as revenues from operations. Ideally, these shouldn’t be part of this accounting head, right? 

On the sales front, India’s electric vehicle industry sold 846,976 electric bikes in FY23, which is more than 2.5 times the number sold in FY22. Of course, this number was about a quarter lower than what the Niti Aayog had set for the Society of Manufacturers of Electric Vehicles. But then, when has the planning body ever believed in setting targets based on ground reality? 

Fame-II is working but is it working right?

As things stand, the government has increased the budget for FAME-II three times in the last fiscal year and nearly doubled it this year. The target of subsidizing 7200 plus e-buses has already been achieved and going forward it looks like the government would push the envelope with the two-wheelers and four-wheelers as well. 

Informatively, the finance ministry has allocated ₹5,172 crore to incentivise EVs under FAME-II in FY24, nearly double the outlay of ₹2,897 crore made last fiscal. However, the challenge lies elsewhere as the government needs to relook at the need, quantum and quality of subsidies that should be offered, be it to stimulate demand or stick with the supply side only. 

The fact remains that subsidies eventually tend to distort the market and the government needs to ascertain whether India’s e-mobility industry would die an untimely death without such a mechanism or will subsidies end up actually promoting quantity over quality and inefficiencies over efficiencies.