The Faster Adoption and Manufacturing of EVs (FAME) II scheme initiated in 2019 was supposed to be a pioneering policy initiative aimed at transforming the Indian mobility sector by incentivizing adoption of E-vehicles over fuel guzzling, old-tech internal combustion engine (ICE) variants. Today, as its current phase comes to a close in 2023, it stands defamed, even defanged of its potency.
A combination of sarkari schadenfreude and corporate shadowboxing has made the babus at the ministry of heavy industries rake up issues — centering around the degree of localization of electric scooters and initiate a series of punitive steps that has all but left the sector doddering. Their decision to withhold subsidies, threats of penalties on close to a dozen “erring” companies have also exposed the fault lines of overestimating India’s true manufacturing prowess while simultaneously giving out a warning signal to all private players who have been relying on various ongoing subsidy schemes that one may receive funds only to be asked to give it back by those very risk averse bureaucrats who had handed over the cheques to them in the first place.
It was the Prime Minister’s vision for decarbonization that catalysed the launch of this ambition drive that coincided with the need to be energy independent. To put more green vehicles on the road along with their charging infrastructure for a greener, cleaner environment as well as bridge the 30-40% price differential between an internal combustion engine (ICE) vehicle and an EV, Rs 2000 crore was carved out for E-two wheelers in 2019 from a total pool of Rs 10,000 crore that was allocated for the entire EV industry under Fame II. This subsidy was just a starter kit with a definitive sunset clause and was calculated on the basis of battery power – originally capped at Rs 10,000 per kWh, further modified to Rs 15,000 per kWh to turbo charge sales of upto 1 million e-bikes over a 4 year period.
The co-adjuvant phased manufacturing plan (PMP) was a collateral attempt at economic self-reliance – a localization target of 50% in stages with incremental item by item deadlines. Call it a Make In India hard sell that rode piggyback on the growing chasm between Beijing and Washington that has led to most corporations adapt to a “China+1 strategy.”
Covid, however, threw everyone off gear. Failing to localise as per the original schedule when the entire world was in a disarray, multiple representations were made by several E-scooter players to the relevant ministry seeking PMP extensions. Volumes were too low at that point for auto component suppliers — themselves paralysed under business uncertainties — to entertain fresh E-scooter orders by making fresh capital investments. The initial response from the government was supportive and extensions were offered based on which vehicles were even certified by relevant bodies and subsidies were reimbursed until 2022 when they were abruptly stopped on the back of anonymous complaints. Almost a year passed before the companies were informed their subsidies were being withheld, by which time they had cumulatively passed on almost Rs 1200 crore worth of subsidies to customers. Then in 2023, recovery notices were sent to them seeking the amounts back retrospectively. It is indeed strange that one arm of the same government had during the pandemic initiated an emergency funding scheme (ECLGS) to save jobs and local industry dealing with the unprecedented crisis while another sought a crackdown on some of the earliest movers who had fuelled the EV revolution, in the first place.If the original spirit of FAME was to move the largest number of dirty-fuel scooter users to EVs by aiming at the low end of the customer profile, the policy got progressively diluted to include higher rated batteries for more power which also drove up the price of the vehicle. Even though the policy had in place a price ceiling of Rs 1.5 lakh (ex factory), the higher powered “premium” vehicles ended up cornering the largest share of the budget. The average subsidy per vehicle too changed drastically doubling from the original intended Rs 20k/vehicle, to about Rs 40K per vehicle, drying up the budget before time. The Ministry too ended up missing its target by half. It seems the budgetary allowance was fixed first and the maths followed there after.
Ironically, if the proposed subsidy claw back of Rs 500 Crores were to be added to the Rs 1400 crore withheld till date by the government, it would tantamount to almost zero allocation to the industry in the last 4 years of the scheme, while having the private sector pass on the subsidy to customers from their own pocket! In effect, the Government would have achieved the impossible feat of rolling back a government scheme in toto.
Such knee jerk reactions also perpetuate an industry misnomer that all vehicle manufacturers, including a are original equipment manufacturers (OEMs.) After designing or developing the prototype in-house, many actually outsource large parts of the critical components to a network of multi-tiered independent vendors who achieve economies of scale by aggregating demand. EVs especially have complex engineered parts that are best left to experienced suppliers and even though makers like Ola, Tatas and others are working on vertical integration, the reliance on vendor model remains high and prevalent. Then if suppliers fail to deliver, why drive the manufacturer to bankruptcy?
While some top tier manufacturers have indeed pushed the envelope using sales strategies structures to obfuscate, the petty knit picking and over regulation is working against the core idea of E-Mobility itself, incentivising both the private sector and the government to try and game the system by outsmarting each other and in the process blowing a once-in-a-lifetime- manufacturing opportunity.
Make targets that are deliverable, remove the funding choke that has already seen incumbents and early movers fall by the wayside and also a 20% industry wide sales drop in June — first year-on-year fall since January 2022.
Subsidies cannot be evergreen but for now target the sops to the ones who deserves them the most and make them equal for all by levelling out the distortions. Premium EV two wheelers shouldn’t eat up half of the budget for a quarter of the target production. Instead allow the budget to last out longer, impacting a wider pool. Else only the corporate lawyers will end up with bigger cars and better homes.