Engineering & Capital Goods News

Indian Government Tightens Release of FAME-2 Subsidies, Probes EV Makers


Indian electric vehicle (EV) makers are being subject to tightened scrutiny over their eligibility for FAME-2 subsidies. We discuss the government’s reasons for stricter implementation of the FAME-2 scheme. The scheme is India’s flagship program to increase manufacture and support adoption of green transport technology through the reduction of upfront costs. The article also briefly looks at other supporting policies to promote electric vehicles in the country.


Indian electric vehicle (EV) makers have been subject to an ongoing probe over the misuse of subsidy allocation under the FAME-2 scheme and non-compliance with the standards required to be eligible for these subsidies. FAME-2 is the second phase of India’s flagship promotion scheme for clean mobility technology – Faster Adoption and Manufacturing of Hybrid and Electric Vehicles in India.

As per media reports, three-wheeler manufacturers form the majority of companies whose subsidies have been paused, including Victory Electric Vehicles, Thukral Electric, and Best Way Agencies. Reasons for the expiration of subsidies include sourcing imported parts for vehicle production or using unapproved outdated battery technology. For some companies like Atul Auto, Euler Motors, and Dilli Electric, subsidies have stopped due to delays in compliance certification or discontinuation of the certified vehicle.

Last December, the Ministry of Heavy Industries said it had received complaints against 12 companies, including Hero Electric and Okinawa Autotech. India paused the release of FAME-2 subsidies last May when it first received these complaints. Subsequently, as reported by ET, the subsidies were released for companies that proved their compliance to the FAME-2 scheme.

How auto makers qualify for FAME-2 subsidies

To qualify for FAME-2 subsidies, EV original equipment manufacturers (OEMs) must demonstrate that at least 50 percent of the components in their vehicles are manufactured in India and locally sourced. The Automotive Research Association of India (ARAI) tests this localization percentage before the EV is certified for sales.

The policy is part of India’s phased manufacturing program to steadily grow the in-country component manufacturing ecosystem for EV vehicles.

The government is able to track the domestic value addition (DVA) of EV companies by connecting OEMs enterprise resource planning (ERP) software with its own application programming interface (API) to maintain transparency on compliance and traceability of product manufacturing. This IT-enabled linkage between beneficiaries’ ERP and the nodal ministry’s portal was set to be in effect from October 1, 2022.

The IT-enabled system based on Application Programming Interface (API) would enable smooth transfer of a set of critical data related to domestic value addition (DVA) from the beneficiaries’ existing enterprise resource planning (ERP) systems to the nodal ministry’s portal along with traceability of products based on digital footprints from October 1.

This data will assist in the disbursal of incentives for automakers seeking support under FAME-2 and the production-linked incentive programs. 

What is the FAME-2 scheme?

The FAME-2 India scheme was launched with an outlay of INR 100 billion (US$1.22 billion) to incentivize demand for EVs by providing upfront subsidies and creating EV charging infrastructure. The scheme hopes to support 1 million electric two-wheelers, 500,000 electric three-wheelers, 55,000 electric cars, and 7,090 electric buses through subsidies.

The scheme also allocates INR 10 billion (US$122.98 million) for the provision of EV charging stations. In 2022, 2877 EV charging stations were approved in 68 cities across 25 states and union territories. A total of 1576 charging stations were sanctioned across nine expressways and 16 highways.

The FAME-2 India scheme was redesigned in June 2021 based on experiences during the Covid-19 pandemic period and feedback from industry and users. The redesigned scheme intends to enable the faster proliferation of EVs by lowering upfront costs. The scheme is also extended by a period of two years – that is, up to March 31, 2024.

Deployment of FAME-2 incentives

According to government data, as of October 2022, there were 64 electric vehicle manufacturers registered to access demand incentives under FAME-India Scheme Phase-II.

The details of demand incentives given under Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles in India (FAME) scheme phase-II, category-wise are shown below:

S.No.

Category

Amount

1.

Electric two-wheelers

INR 24.64 billion (US$303.06 million)

2.

Electric three-wheelers

INR 3.51 billion (US$43.19 million)

3.

Electric four-wheelers

INR 1.14 billion (US$14.10 million)

4.

e-buses

INR 6.87 billion (US$84.60 million)

Parliamentary Questions, Rajya Sabha, December 9, 2022.

See here for the total number of EVs registered in the country, category-wise, as on November 30, 2022.

Some other incentives supporting FAME-2 objectives and EV adoption in India:

  • The National Programme on Advanced Chemistry Cell (ACC)
    The PLI scheme for ACC battery manufacturing has an outlay of INR 181 billion (US$2.49 billion). The goal is to establish local manufacturing capacity of 50 Giga Watt Hour (GWh) of ACC and five GWh of Niche ACC capacity. The program is designed to be technology agnostic. Beneficiary firms can choose suitable advanced technology and their corresponding plant and machinery, raw material, and other intermediate goods to set up their cell manufacturing facility to cater to any application.
    The NPACC PLI scheme will thus aid local capacity building in core competent technologies to make India a hub of clean energy and boost local employment.
    PLI beneficiaries announced under this scheme are Reliance New Energy Solar Limited, Ola Electric Mobility Private Limited, Hyundai Global Motors Company Limited, and Rajesh Exports Limited. Five other applicants have been placed on a waitlist, including Exide Industries Limited and Larsen & Toubro Limited.
  • Productivity Linked Incentive (PLI) scheme for Automobile and Auto Components
    Announced with a budgetary outlay of INR 259.38 billion (US$3.50 billion), the primary goal of this scheme is to boost clean energy production capabilities, such as through the electric vehicle industry in India, and expanding the country’s share in the global automotive trade. The credit ratings agency ICRA expects the PLI to accelerate investments towards developing a local EV ecosystem and potentially make India an export hub in the global auto supply chain. 20 companies have been approved as PLI beneficiaries under the “Champion OEM Incentive Scheme”, including Ford, Hyundai, Kia, Ashok Leyland, Piaggio, Hero MotoCorp, Suzuki Motor, Tata Motors, and Bajaj. 75 companies have secured PLI approval under the “Component Champion Incentive Scheme”, including Maruti Suzuki, Hero MotoCorp, Tata Autocomp, Mitsubishi Electric, Toyota Kirloskar, Motherson Sumi, Bosch, and Lucas-TVS.
    The approved applicants proposed investments worth INR 450.16 billion (US$5.88 billion) under the Champion OEM Incentive Scheme and INR 298.34 billion (US$3.90 billion) under the Component Champion Incentive Scheme.
  • Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector-Phase-2
    On January 25, 2022, the Ministry of Heavy Industries (MHI) notified the Scheme on Enhancement of Competitiveness in the Indian Capital Goods Sector-Phase-2 for providing assistance to Common Technology Development and Services Infrastructure. The scheme has a financial outlay of INR 12.07 billion (US$148.44 million) with budgetary support of INR 9.75 billion (US$119.90 million) and industry contribution of INR 2.32 billion (US$28.53 million).
    A total of 28 projects with a Project Cost of INR 9.09 billion (US$111.85 million) have been approved so far under the Phase-2 of the Scheme for Enhancement of Competitiveness in the Indian Capital Goods Sector.
    There are six components under the Scheme for Enhancement of Capital Goods Sector Phase-2, namely:
    – Identification of Technologies through Technology Innovation Portals;
    – Setting up of four New Advanced Centres of Excellence and augmentation of Existing Centres of Excellence;
    – Promotion of skilling in Capital Goods Sector–creation of Qualification packages for skill levels 6 and above;
    – Setting up of four Common Engineering Facility Centres (CEFCs) and augmentation of existing CEFCs;
    – Augmentation of Existing Testing and Certification Centres; and
    – Setting up of 10 Industry Accelerators for Technology Development.

About Us

India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write to india@dezshira.com for more support on doing business in in India.

We also maintain offices or have alliance partners assisting foreign investors in Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Italy, Germany, and the United States, in addition to practices in Bangladesh and Russia.



Source link

Leave a Comment