Indian demand for two-wheeler electric vehicles (EVs) could fall after the government cut subsidies provided under the Faster Adoption and Manufacturing of Electric Vehicles-II (Fame 2) scheme from 1 June.
The demand incentive for electric two-wheelers will be 10,000 rupees/kWh ($121/kWh) from 1 June, the ministry of heavy industries said on 21 May. The ministry in 2021 raised the demand incentive from Rs10,000/kWh to Rs15,000/kWh.
The ministry also reduced the cap on incentives for electric two-wheelers to 15pc of the ex-factory price, down from 40pc earlier. The cap had been raised from 20pc to 40pc in 2021.
Only electric two-wheelers with a price below Rs150,000 are eligible for Fame 2 incentives. The subsidy cut will significantly raise prices for end consumers, with the maximum subsidy amount now at Rs22,500 — 15pc of Rs150,000 — down from the previous 40pc or Rs60,000.
The Fame 2 scheme provides a subsidy of Rs10,000/KWh for three- and four-wheeler EVs, and a cap of 20pc of the ex-factory price.
Indian EV sales have surged over the past few years, but two-wheeler EVs dominate the market. Electric two-wheelers comprised nearly 62pc of all EV sales in the April 2022-March 2023 fiscal year at 727,176 units, up from 55pc or 252,555 units in 2021-22, data on the government's Vahan website show. In comparison, three wheeler sales were at 401,872 units in 2022-23 and 183,449 units in 2021-22, comprising 34pc and 40pc of total sales, respectively. Four-wheeler sales comprised just 4pc of total EV sales in 2022-23 and 2021-22.
The subsidy cut for two-wheeler EVs could also have been influenced by the suspension of subsidies to two manufacturers earlier this year because of alleged violations of the Phased Manufacturing Programme (PMP). The government launched the PMP last year to promote domestic production of EVs, their spare parts and assemblies. The PMP introduced a graded customs duty structure for EVs and their parts. The subsidy suspensions led to a month-on-month fall in EV sales in April. But the subsidy suspension announcement could lead to a surge in demand during the remainder of May, pulling two-wheeler EV sales higher on the month and on the year.
India's EV policies
The Fame scheme, which the government launched under the National Electric Mobility Mission in 2015, aims to incentivise demand for EVs by providing financial support for such vehicles.
The Fame 2 programme was initially introduced for a period of three years from 2019 at a cost of 100bn rupees, and supports the electrification of public transport as well as the installation of EV charging points across the country. The government in 2021 extended the scheme until 31 March 2024.
The government allocated Rs51.72bn for the Fame 2 scheme in its budget for the April 2023-March 2024 fiscal year, up by nearly 80pc from Rs28.98bn during 2022-23. The reduction in subsidies for two-wheelers is likely to boost available funds for three and four-wheelers.
The government also exempts imports of capital goods and machinery required for the production of lithium-ion cells from customs duty.
