Extend FAME II Subsidy: Standing Committee

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• The Parliamentary Standing Committee on heavy industry highlighted that Phase 2 of the FAME scheme to subsidize electric vehicles has achieved only 51.96 per cent of its target.

About

• The Committee on Estimates (2022-23) for evaluation of electric vehicle policy under the the Union Ministry of Heavy Industries suggested an extension of the FAME II scheme that was to end in 2024.
• In the recently presented Union Budget, Finance Minister Nirmala Sitharaman doubled the FAME II budget but didn’t extend the timeline.

Major Issues highlighted by the committee

• India is massively dependent on oil imports and Internal Combustion Engine (ICE) vehicles produce air pollution and greenhouse gases.
• Removal of government support would result in price escalation of EVs significantly.
• The committee found that a large number of startups are also involved in this field, and they may have to shut down once FAME II is withdrawn.
• Promoting the use of EVs can have numerous benefits for the environment, public health, economy and technological innovation. India has been working to promote the use of electric vehicles (EV) through various schemes and incentives

Data Facts

• Around 1.2 million EVs were registered in India in 2022-23 — 2.7 times of that registered in 2021-22, according to VAHAN.
• As a share of all the vehicle registrations, only 5.6 per cent were EVs in 2022-23.

Reasons for Low EV adoption

• EV adoption was low because of the higher upfront cost of EVs in comparison to ICE vehicles. This was because of the high cost of lithium-ion batteries, which was 30-40 per cent of the vehicle cost.
• However, the operational cost of battery-operated vehicles is lower than the conventional vehicles.
• EV charging stations are sanctioned only for a few cities.

Chinese Lessons on EV Adoption

• In 2009, the Chinese government, which boasts the largest EV market, began to provide generous subsidies for EV purchases. But the price differential and the number of buyers were both large. So, paying for the subsidies became extremely costly for the government.
• As a result, China’s policymakers planned to phase out the subsidies at the end of 2020 and instead impose a mandate on car manufacturers. It became compulsory for car manufacturers to ensure a certain percentage of all vehicles sold by them each year is battery-powered. 
• To avoid financial penalties, every year manufacturers must earn a stipulated number of points, which are awarded for each EV produced. The points are calculated on a complex formula that takes into account range, energy efficiency, performance and more.
• The battery EV market in China and concluded that a phase-out policy could be the most cost-effective while achieving higher sales promotion compared with alternative policies that provide larger subsidies over more prolonged periods.

Suggestions

• The GoI must show confidence in the Indian EV market and ‘plug in’ the capital sourcing gaps through an effective subsidy scheme like the soon-concluding FAME II.
• At this point, it would be worthwhile to look at a leading electrified transport economy like China and draw lessons from their experience.
• Boost charging infrastructure.

About FAME

• Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme was formulated by the Union Ministry of Heavy Industries in 2015 to promote adoption of electric / hybrid vehicles in the country.
• At present, Phase-II of the scheme (FAME II) is being implemented for a period of five years from April 1, 2019 with a total budgetary support of ?10,000 crore.
• Focused Areas: They are (i) Demand Creation, (ii) Technology Platform, (iii) Pilot Project and (iv) Charging Infrastructure. 
  • Market creation through demand incentives was aimed at incentivizing all vehicle segments i.e. 2-Wheelers, 3-Wheelers Auto, Passenger 4-Wheeler vehicles, Light Commercial Vehicles and Buses.
• Phase II: Incentives are applicable mainly to vehicles used for public transport or registered for commercial purposes.
  • The benefits of incentives will be extended to vehicles fitted with advanced batteries like Lithium-Ion batteries.

Source: DTE