Seven manufacturers were fined over not complying with local sourcing norms; government is planning to take legal action against them
Representative image: iStock. The Ministry of Heavy Industries is tightening its stance on the long-standing issue of violations of the Faster Adoption and Manufacturing of Electric Vehicles (FAME 2) scheme by electric vehicle (EV) manufacturers, signalling a rocky road for the EV industry.
The government is planning to take legal action against EV manufacturers who have failed to return the wrongfully claimed incentives under FAME 2, news website The Economic Times reported on July 17, 2023. These manufacturers would be debarred from participating in the FAME 3 scheme, it added.
The scheme (which ends in March 2024) was implemented to reduce the price of EVs by incentivising manufacturers through subsidies. It subsequently helped lower two-wheeler EV prices by about 35 per cent, bringing in some parity with internal combustion engine variants, reported website mint.
To be eligible for the scheme, a manufacturing clause required the vehicle to be fitted with 50 per cent of locally made parts by vehicle value.
However, seven manufacturers were fined over non-indigenous components. This was found in a probe carried out by the government in response to the allegations raised via anonymous emails.
While some manufacturers have agreed to return the subsidy, some have contested the allegations. The Society of Manufacturers of EVs, an industry association, claimed that the government’s actions reflect unfair business regulatory practices, compounded by a triple whammy of punitive actions.
Moreover, a recent amendment has reduced the subsidies under FAME 2 from Rs 15000/kWh to Rs 10000/kWh. The maximum subsidy has been capped at 15 per cent of the vehicle price, a drastic cut from the former limit of 40 per cent.
These recent developments have dented the electric two-wheeler sales momentum. They can also trigger banks to withdraw working capital, rating agencies to downgrade businesses to risky categories and put the survival of many EV startups at stake.
The actions can have repercussions for mass EV adoption in India. The two-wheeler EV industry, aided by the FAME scheme, has played a crucial role by pioneering EV penetration in India. It contributes to 62 per cent of the EVs manufactured in financial year 2022-2023.
A graph showing EV registration trends over the last seven years. Source: CSE analysis of Vahan data.
However, for the phased manufacturing programme to work, the government need to strengthen local EV supply chains further. The Advanced Cell Chemistry Production Linked Incentive scheme, which aims to scale up indigenous cell and battery manufacturing, saw limited success, with only Reliance, Ola and Rajesh Exports successfully submitting bids.
The scheme needs a thorough overhaul to garner larger private sector investments and manifest a trickledown effect on tier 2 and tier 3 industries. This would enable the proliferation of technologically strong small manufacturers of EV subsystems like cell components, power electronics and motors, helping OEMs to wean away from imports.
At the same time, manufacturers also need to confront the fact that subsidies are only a temporary financial support measure and they would have to develop locally self-sustaining business models.
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