Recharging e-two-wheelers

New policy may force the industry to live without subsidies

The much-awaited successor to the second edition of Faster Adoption and Manufacturing of Electric (and Hybrid) Vehicles, or FAME II, has caught the e-two-wheeler industry by surprise. Under the Electric Mobility Promotion Scheme (EMPS), the government has halved the subsidy on e-two-wheelers, limited the number of vehicles it will cover, and restricted the duration of the scheme to four months — from April 1 to July 31. Though the industry had expected a rollback of sorts, the EMPS suggests the government has hit the brakes harder and earlier than expected. Under the EMPS, the subsidy on electric two-wheelers has been halved to Rs 5,000 per kilowatt hour with a maximum of Rs 10,000 per vehicle. The new policy also introduced a quota system of 333,387 e-two-wheelers. For the government, the EMPS will entail an outlay of Rs 500 crore from Rs 10,000 crore under FAME II. The abruptness with which the government has cut back on subsidies and the industry’s dismayed response point to the problematic nature of the electric-vehicle (EV) business in India.

A little over a week after the EMPS was announced, major e-two-wheeler manufacturers met senior officials of the Ministry of Heavy Industries, pointing to losses of over Rs 300 crore as a result of the new terms. Their complaints are valid, in that the new scheme omits from its ambit thousands of vehicles under manufacture, in bonded warehouses or dealer showrooms. Selling inventories without the benefit of the steep discounts available under FAME II will be difficult. There are complaints, too, of the red tape involved, with manufacturers required to re-register themselves, dealers, and vehicles to be eligible for the EMPS. The old complaints about delays in subsidy approval were also reiterated. These grievances are justified but, if anything, they highlight the need for EV manufacturers to learn to live without the crutch of subsidies, which were significantly raised between FAME I (2015-19, Rs 895 crore) and FAME II (2019-24, Rs 10,000 crore). Indeed, the cutback should not have come as a surprise, given the adjustments announced in the FAME II programme in May last year — a reduction of the per vehicle subsidy and penalising manufacturers who violated local sourcing norms. In that sense, the EMPS can be viewed as a means of reducing that dependence sooner rather than later, though a more moderate glide path may have been a better route.

The fact is that purchase subsidies alone may not have been the advisable path to a faster adoption of EVs. Nine years since the first FAME scheme was announced, e-two-wheelers account for only 5 per cent of all two-wheeler sales, some distance from the target of 30 per cent of EVs by 2030 to meet clean air objectives (for cars, the share is even lower at 2 per cent). The absence of a charging ecosystem has also been a major constraint, a fact the government belatedly understood by sanctioning Rs 800 crore under FAME II for public-sector units to set up 7,500 charging points across the country, a number that is still inadequate. This is the route China followed, by steadily reducing vehicle-purchase support (now fully withdrawn) and purchase-tax incentives each year from 2009 onwards and simultaneously expanding charging infrastructure. This has enabled manufacturers to wean themselves off subsidies and become formidable challengers in the global EV market.