EV manufacturers fined over non-indigenous components: Is it misappropriation of subsidy or notional loss?

Okinawa Autotech, Hero Electric told to pay Rs 249 crore for misappropriation of FAME II subsidies

By Moushumi Mohanty, Mrinal Tripathi
Published: Monday 08 May 2023
Photo: iStock
Photo: iStock
Photo: iStock

The central government has fined Indian manufacturers of electric vehicles (EV) for misappropriation of subsidies over not sourcing the components indigenously. However, we need to question whether local supply chains and EV manufacturing infrastructure are even available in the country to fit these criteria. 

Okinawa Autotech was fined Rs 116 crore and Hero Electric has been fined Rs 133 crore for violating the phased manufacturing programme guidelines.

Ola Electric was also found violating norms and the original equipment manufacturer (OEM) has agreed to reimburse approximately Rs 130 crore for a charger sold with one of their two-wheeler varieties.

The manufacturers had received financial support under the second phase of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME II) scheme. 

The scheme was formulated by the Union Ministry of Heavy Industries in 2015 to promote the adoption of electric / hybrid vehicles in the country. At present, FAME II is being implemented for five years from April 1, 2019 with a total budgetary support of Rs 10,000 crore.

FAME II provides electric two-wheelers with a maximum subsidy of 40 per cent on the total cost of the vehicles given the maximum ex-factory prices for the vehicles is Rs 1.5 lakh per unit and at least 50 per cent of domestically manufactured components in their vehicles.

It is woeful to note that already sold and in-use vehicles from these manufacturers were traced and taken apart to check the origins of their components. These checks were not conducted for mechanical faults in the vehicle jeopardising people’s safety . 

Instead, the steps were taken for OEMs not complying with the government’s vision of indigenisation of manufacturing. At this point, it is worth mentioning the government’s failure to ensure the OEMs’ compliance with FAME II regulations before handing out subsidies to them.

But the government’s dilemma between supporting the EV OEMs and making their approvals seamless and stifling them on the road to government-mandated fleet electrification targets is even more discomforting. 

An April 2023 report by daily The Economic Times noted at least six new electric two-wheeler models certified by Central Motor Vehicles Rules (CMVR), 1989 waited for months to be enrolled on the National Automotive Board portal to claim the FAME II subsidy. 

These models were by OEMs like Hero Electric and Bgauss. They were compliant with the CMVR regulations and recently amended (for more stringency) Automotive Industry Regulations in India-156 standards.

Local supply chains and manufacturing infrastructure for EVs are missing in the aspirational ‘trillion-dollar’ Indian economy, as has been noted widely.

Basic necessities for making a battery, like aluminium and copper current collectors, are not available in India and there have been scant efforts to even build an ecosystem for the same. 

This situation would make it difficult for OEMs to supply for the country’s 30 per cent fleet electrification target by 2030 based solely on indigenously sourced components. 

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