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FAME-II Subsidy Reduced
As per the reports, electric two-wheeler prices will increase from the 1st of June, 2023. This will happen as a result of the Government’s plans to Decrease the incentive amounts provided by them to the electric vehicle manufacturers under the FAME II subsidy policy. The government was providing about 40% subsidy to the EV company owners on the electric vehicle’s initial price after being manufactured. Now, it has been decided that the subsidy cost provided to them will be reduced to 15%, by revising the FAME II scheme. And, as a result, the prices of electric scooters will increase in the Indian market.
About FAME II Subsidy Scheme
The central government launched the FAME-II subsidy scheme, in which the electric vehicle manufacturers were provided subsidies by the government for every electric vehicle sold. This was done to enhance the EV market in India, so that the new innovative technology of Electric Vehicles will flourish in India, and atmospheric pollution can also be kept in control.
The 3-year FAME II subsidy scheme, for which the government provisioned a total amount of Rs. 10,000 crores, began on 1st of April, 2019. Then, it was extended for 2 years from June 2021. Thus, the effective period of the subsidy was 31st March 2024.
For increasing the demand for electric scooters, the MHI raised the demand incentive from Rs. 10,000 per kWh to 15,000 kWh in June 2021. And, the maximum cap got increased from 20% to 40% of the price of the electric vehicle. Now, the subsidy will be reduced.
Reason Behind Subsidy Reduction
The government has decided to decrease the portion of the subsidy because of the following reason:
The government announced the FAME II subsidy scheme to raise awareness among the citizens of India regarding the advantages of having electric vehicles. But, in the last year, the number of electric scooters sold has increased. Therefore, the Government no longer needs to give so much subsidy to raise awareness. That is why, the rates of subsidy under the FAME II subsidy scheme would be decreased.
Reaction from Bhavis Aggarwal, Founder, Ola Electric
A spokesperson from Ola Electric said, “No decision has been made on the price rise and the team will be meeting on Monday (22nd May 2022) to take into account a correct decision on the pricing in light of the renewed situation.”
Before this, the CEO of Ola Electric, Bhavish Agrawal had told that, the company was bracing itself to live without subsidies. “Even if the subsidies are removed, Ola has prepared itself to live in a world without subsidies, as we are developing technologies in-house and performing large-scale manufacturing from day one,”
Reaction From Mr. Kapil Shelke, Founder & CEO, TORK Motors
“The revised FAME-II subsidy slab by the government is a step in the direction taken by several nations as markets for EVs start to begin their maturing phase. While penetration of EVs are still much below the desired 10%, it will also allow for the manufacturing ecosystem to gear up for the new reality. For us at TORK Motors, we have focussed our efforts on providing our customers with a great product and ecosystem experience, to provide high levels of customer delight and satisfaction and will continue to stay on this path, irrespective of subsidy slab changes.”
Benefits from PLI Scheme
The government’s production-linked incentive (PLI) scheme will benefit the major companies in the EV industry, such as Ola Electric, TVS, Hero Motorcorp, etc. because they will get the PLI scheme advantages.
Smaller EV manufacturers or start-ups, who have not been qualified for the benefits from the PLI scheme may have an impact on their company valuations. Therefore, they will have to increase the prices of their electric scooters.
The government’s decision to reduce the FAME II subsidy schemes will lead to an increase in the prices of electric scooters in the Indian market. And, there will be an increase in sales of electric scooters during this period, till the FAME II subsidy reduction is made effective.