Lower subsidy will reduce consumer interest and adoption, and will hurt the entire industry for a considerable time
The Union Ministry of Heavy Industries May 19, 2023 reduced the subsidy for electric two-wheeler vehicles under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME II) scheme from Rs 15,000 per kilowatt-hour (kWh) to Rs 10,000 per kWh.
The ministry also reduced the cap on the maximum subsidy on an electric two-wheeler’s ex-factory price to 15 per cent from 40 per cent.
The notification will come into effect from June 1, 2023 and apply to all electric two-wheelers registered on or after June 1, 2023.
FAME was launched in 2015 by the central government with the aim of catalysing the adoption of EVs in the country. FAME II, the extended form of the original scheme, came into effect in the year 2019.
The three-year FAME II scheme was approved by the government on April 1, 2019, with an outlay of Rs 10,000 crore, of which the Rs 2,000 crore allotted for electric two-wheelers has already been exhausted.
In June 2021, the scheme got a two-year extension, taking the effective period of the subsidy scheme to March 31, 2024.
The sharp reduction in subsidy announced last week will definitely hurt the market and consumer sentiments towards buying an electric two wheeler. The premium bikes will see the biggest decline in sales due to the subsidy cut.
The original equipment manufacturers (OEM) will rush to launch stripped-down models of their vehicles to keep the market shares running, and several players in the industry will follow the trend for keeping the market sentiment intact.
EV sales peaked in March 2023 when 85,793 units were sold in the country. The Union Minister of Heavy Industries Mahendra Nath Pandey had announced the sanction of Rs 800 crore under FAME II to the public sector unit oil marketing companies, including Indian Oil Corporation Ltd, Bharat Petroleum Corporation Limited and Hindustan Petroleum for setting up 7,432 public fast charging stations across the country.
The central government committee had recommended certain changes to improve the viability of the development of public charging infrastructure. It includes supporting the upstream infrastructure such as distribution transformer, low tension and high tension cables, alternative current distribution boxes, circuit breakers / isolators, protection equipment, tubular or plain concrete cement, mounting structures, fencing and civil work. These generally cost up to 60 per cent of the overall cost of setting up a public electric vehicle (EV) charging station.
The installation is expected to be completed by March 2024. At present, there are about 6,586 charging stations across the country. The addition of the new 7,432 public charging stations will be a significant push to the EV charging ecosystem. This will be used for charging electric two-wheelers, four-wheelers, and light commercial vehicles.
These moves were expected to boost the EV ecosystem in India and encourage more people to switch to cleaner modes of transportation. As a transitional shift, the government will have to continue providing subsidies for more EV adoption and promoting consumer’s sustainable shift to electric mobility.
Lower subsidy will definitely reduce consumer interest and adoption, and will hurt the entire industry for a considerable time.
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