In top gear: Govt set to prop up EV market with VC funding for start-ups

Rs 15 bn funding is to be available to new players entering the space

The ambitious Rs 93.8-billion FAME-II scheme of the government to promote electric vehicles (EV) will aim at disbursing incentives totalling Rs 55 billion for its beneficiaries, including the domestic market and start-ups. The government will tap state funding agencies such as SIDBI, IFCI Ventures, Canara Bank’s VC fund and private financiers to set up a venture capital fund of Rs 15 billion. 

The Centre has identified around 136 start-ups in the EV space and would set up an incubation centre for them.

The draft FAME-II policy states, “According to the information available from Start-tup Team of Invest India, about 136 start-ups related to EVs exist in the country. These are not getting access to the required funding, as financial institutions are reluctant to extend credit facilities to them. In order to support them, it has been proposed that a venture capital fund of about Rs 5 billion be set up. A professional fund manager will be appointed to manage the funds.”

The draft reviewed by Business Standard mentioned that Rs 5 billion will come from state-owned financiers while an additional Rs 10 billion will be sourced through private agencies. The department of heavy industries will also set up an alternative investment fund to finance ventures through equity and/or debt.

Under FAME-II, an incubation offer will also be given to 10 innovators in the EV space. They will be provided with an initial grant of up to Rs 50,00,000 with a total capital outlay of Rs 1.5 billion. The focus areas for incubation will be EVs, battery technology, security and safety technology and charging infra, among others.

Close to Rs 58 billion has been earmarked for all the incentive schemes for EVs. The draft, however, mentions that the demand incentives offered under the scheme will be to the extent of 20 per cent of the cost of vehicles and the balance will be borne by the beneficiaries (state or state agencies). In case of electric public transport, 60 per cent of the cost will be spent by the state governments. 

“For establishing manufacturing units, the scheme proposes only 25 per cent capital investment while 75 per cent will come from private players. Similarly, for venture capital funding, the scheme will contribute only a part of the fund and the remaining amount will come from other private financial institutions,” said the draft.