FAME investigations: Subsidy crunch hurting electric two-wheeler makers

The electric two-wheeler manufacturers are facing a major roadblock as the government has stopped disbursing subsidies reserved for electric vehicle (EV) manufacturers under its "Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme," The Economic Times reported.

Subsidies have been stopped for several manufacturers who are under investigation for alleged violations of the local-sourcing rules of the scheme. Okinawa Scooters and Hero Electric were on the first list of original equipment manufacturers (OEMs) to have their subsidies arrested in September, 2022 as reported by Business Standard.

Given the development, industry insiders say that the one-million-unit target this fiscal year may not be achieved. However, the number may still be a new record in itself at around three times last fiscal year's volume, the report said.

The government has withheld payments of subsidies worth Rs 1,100 crore under the FAME scheme. Industry executives expressed their concern about the development, saying that they were facing an acute shortage of working capital as they had already passed on the subsidy benefit to the customers and were waiting for reimbursement from the government.

Sohinder Gill, director general of the Society of Manufacturers of Electric Vehicles (SMEV) was quoted as saying in the report, "As a category, e-2W sales will struggle to reach 720,000–750,000 units this fiscal, a 25 per cent blip of the annual projection of 1 million units done by the NITI Aayog and the SMEV."

Gill is also the chief executive of Hero Electric, which is among the companies facing investigation by the government. The SMEV has reiterated its complaince with the rules. Meanwhile, the government is also looking into allegations about another set of four companies artificially keeping two-wheeler prices lower to qualify for the FAME subsidy, according to ET.

According to the data available on the government’s Vahan portal, registration of electric two-wheelers totaled 600,000 units this fiscal year until January, and Gill said it may at best go up by another 150,000 units by the end of the fiscal year in March. In the last fiscal year, sales were around 231,000 units, the report elaborated.

Notably, the FAME scheme has played a key role in boosting the growth in electric vehicle sales. In the case of two-wheelers, the government provides an incentive of Rs 15,000 per kWh, which is capped at 40 per cent of the total vehicle cost.

The report added quoting Gill, who said unless the issue over subsidy is resolved quickly, India may have to postpone its vision for a cleaner environment and lower dependency on fossil fuels by a few years. Significantly, there is still a huge demand and an order backlog for electric two-wheelers, which points towards the growing popularity and demand for EV two-wheelers.