FAME-II scheme's focus on localisation fails to enthuse two-wheeler makers

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The government’s ambitious FAME-II scheme to help India leap into a future driven by clean mobility has sparked hope and disappointment among automakers. Two-wheeler makers in particular have been left unenthused by the scheme that went into effect on April 1.

The second phase of the Faster Adoption and Manufacturing of Electric, or FAME-II, has curtailed the scope of incentives and made electric two-wheelers costlier, says Sohinder Gill, director general, Society of Manufacturers of Electric Vehicles (SMEV).

“Not one electric two-wheeler has been sold since the launch of FAME-II,” Gill adds. The new guidelines, he says, have effectively left out 90-95 per cent of the electric two-wheeler market from the subsidy net and this has increased the cost of vehicles by Rs 10,000-12,000.

This is because FAME-II has linked incentives to a host of other factors, such as minimum top-speed, range-per-charge, acceleration and average speed and the extent of localisation — half the cost of a scooter must comprise parts sourced locally.

Not surprisingly, this has not gone down well with the industry. “It is in turbulence. In the near term, liquidating inventory would necessitate higher discounts to offset the lack of subsidy. EV makers would then concentrate on localisation and building supply chains alongside product development to come up with new models. They have requested the government to re-consider the stringent norms,” said Crisil in a recent report.

Others are equally critical of the policy. “The scheme for incentivising electric vehicles under FAME II isn’t optimal, as it glosses over the fundamental issue of demand generation,” said Rajiv Bajaj, MD, Bajaj Auto, in an interview to Business Standard recently. He said the flaw with FAME II was that it addresses the wrong end of the problem by linking incentives to localisation.

But not all is bad with the policy. With an outlay of Rs 10,000 crore for a period of three years, compared to Rs 895 crore of FAME-I that was launched in 2005, the scheme has been designed to encourage automakers to commit investments in electric mobility through incentives and by creating charging infrastructure. FAME-II aims to support 1 million electric-two-wheelers, 0.5 million electric three-wheelers, 55,000 four-wheelers and 7,000 electric buses during its lifetime.

Besides reducing the country’s dependence on crude oil, the government through its emphasis on electrification of public transportation hopes to improve air quality across the country. If its laudable targets on EV sales are achieved, the country can cumulatively save 474 million tonnes of oil equivalent, worth Rs 15,21,000 crore, over the lifetime of the vehicle. This would result in net reduction of 14 exajoules of energy and 846 million tonnes of CO2 emissions.

The incentives for electric buses will come in the form of subsidies to operators via the state/city transport corporation (STUs), while for three — and four-wheelers, the sops will be applicable mainly to vehicles used for public transport. In two-wheelers, the focus is on private vehicles. To encourage use of new technologies, incentives will be extended only to those vehicles which are fitted with advance battery like a lithium-ion battery and similar such technologies.

Over the next three years, the scheme targets about 2,700 charging stations in metros, smart cities and cities in the hills. Charging stations will be established on both sides of the road at an interval of 25 km.

The first phase of the scheme, FAME-1, has already made significant advances in creating awareness and demand for electric vehicles. A joint report by NITI Aayog and the Rocky Mountain Institute says in 2017-18 electric two-wheeler sales almost doubled to 54,800 compared to 2016-17, accounting for around 98 per cent of India’s EV sales. As of March 2019, over 100 companies showcased electric vehicles of all types at the India E-Vehicle Show. At the same time, nearly 27 states have formulated strategies for transforming their mobility systems and several other states are in the process of doing so.

The government, too, has reduced tariffs on imported EV components in January 2019 to boost assembly in India and trigger investments in critical components. Both public and private companies are joining hands to this end. So far 10 companies have come forward to adopt Indian Space Research Organisation's cell chemistry for commercial applications, and public sector units are working with the private sector to set up EV charging stations in various cities.

In the second phase, the Centre and state governments have increased their support for the development of charging infrastructures to enable easier adoption of EVs. 

“FAME II is more inclusive. It brings the non-OEM participants as well, charging infrastructure manufacturers and so on, into the fold,” says Kaushik Madhavan, vice president, mobility, Frost & Sullivan. It focuses on last-mile connectivity, shared mobility and a chance for operators to electrify their fleet, he adds. However, all this will make sense only if the automakers are able to bring down the cost to a very attractive level for the user.

Four-wheeler makers have largely welcomed the scheme. N Raja, deputy managing director of Toyota Kirloskar Motor says “FAME II’s goal of promoting environmentally-friendly vehicles and shared and mass mobility is good. However, we expect the government to come up with a mid- to long-term policy on shared and mass mobility.”

As in China, in the initial phase, government incentives will give a fillip to demand. However, to sustain this in the long-term consumer preferences will have to change. That’s the next challenge for the government and EV makers.

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