The sudden reduction in subsidy for electric two-wheelers may lead to a sharp drop in EV adoption, impacting the entire industry for a considerable period of time, the Association of Electric Vehicle Manufacturers said on Tuesday.
However, startups in the electric vehicle space welcomed the government’s decision, saying it was time for the industry to become independent.
The Ministry of Heavy Industries has notified changes in reducing the subsidy provided under the FAME-II (Fast Adoption of Electric Vehicle Manufacturing in India) scheme, which is applicable to electric two-wheelers registered on or after June 1, 2023.
Subsequently, for electric two-wheelers, the demand incentive will be Rs 10,000 per kWh. The upper limit of incentives for electric two-wheelers has been adjusted from the current 40% to 15% of the ex-factory price of the vehicle.
Responding to these changes, Sohinder Gill, director general of the Society of Manufacturers of Electric Vehicles (SMEV), said: “A sudden reduction in subsidies may lead to a significant drop in EV adoption, affecting the entire industry for a considerable period of time.” The reality, he asserted, is that the Indian market remains price-sensitive and the total cost of ownership has not yet firmly taken root in the minds of consumers.
Gill further said that most petrol two-wheelers cost less than Rs. 1 lakh, consumers are less likely to spend more than Rs. Just considering the total cost of ownership, it comes to Rs 1.5 lakh.
“A gradual transition to continued subsidies is ideal to ensure market growth and reach the international benchmark of 20% EV adoption (currently only 4.9%), before gradually reducing subsidies to customers,” he noted.
However, Gill said that the Ministry of Heavy Industry had given hints a few months ago, announcing that they would soon achieve the sales target of 1 million vehicles within four years, and that they may not continue to provide subsidies thereafter.
He added that the ministry had no choice but to either abruptly stop subsidies or manage the rest of the year by making deep budget cuts and withdrawing some unspent funds from the E3W budget.
“In the bigger picture, this could lead to higher crude oil import bills and exacerbate rising air pollution in most Indian cities,” Gill said.
On the other hand, VoltUp co-founder and CEO Siddharth Kabra emphasized the need for a comprehensive consideration of how the electric vehicle industry develops in response to the reduction in FAME subsidies.
“With the subsidy reduced to 15 per cent, it is clear that the EV ecosystem in India is growing rapidly and the demand is there. While the immediate impact of subsidy reduction will be higher prices and lower sales, the government is allowing the industry to be independent to some extent,” he said.
Kabra also called on industry and government to work towards a cohesive infrastructure development policy that will power the industry and help create efficient and cost-effective products without compromising on quality and safety.
Nikhil Bhatia, co-founder and chief operating officer of HOP Electric Mobility, supported the government’s move, saying it is time for the electric vehicle industry to become self-reliant.
He said: “A more pragmatic approach is needed to achieve the long-term development and maintenance of the electric vehicle sector. The phasing out of subsidies is a forward-looking move, and now is the time to gradually eliminate dependence on subsidies.”
Bhatia asserted that subsidy is no longer needed for the booming electric two-wheeler industry and the reduction and eventual removal of FAME II subsidy is a welcome step in the right direction.
