PremiumLast week, the Union government increased incentives on electric two- and three-wheelers to help boost broad-based adoption. According to a section of experts, this was a desperate move by the government to utilize the funds earmarked for the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (Fame) scheme, with the sale of EVs remaining muted for the past two years. Mint explains how this steep increase in subsidies might help push sales of electric two- and three-wheelers and the challenges ahead.
What are the recent changes to the Fame policy, which came into effect on 1 April 2019?
The government announced a 50% increase in incentives for electric two-wheelers to ₹15,000 per kilowatt hour from ₹10,000 per kWh. According to the new rules, the cap on incentives will be limited to 40% of the total price compared to the earlier cap of 20%. The ministry of heavy industries has also mandated Energy Efficiency Services Ltd (EESL) to procure 300,000 electric three-wheelers for use by different authorities. The public sector unit has been given the responsibility to procure electric buses for deploying across cities. The government plans to reduce the cost of acquisition of electric vehicles for government authorities as well as other entities via mass procurement.
Why did the government choose to increase the incentives?
The Fame scheme was announced in 2019 with an outlay of ₹10,000 crore and the government expected to incentivize the purchase of 7,090 electric buses, 35,000 four-wheelers, 500,000 three-wheelers and 1 million two-wheelers. In reality, though, due to the high localization norms and other rules, most of the products in the segment did not qualify for the incentives. The ones that qualified did not get enough subsidies to close the price gap with combustion engine vehicles. The covid-19 pandemic further impacted demand in 2020 and the devastating second wave in April and May might also take a toll on EV sales in 2021. Sales of EVs in the domestic market decreased by 19.9% to just 236,802 units in FY21, according to data released by the Society of Manufacturers of Electric Vehicles. Sales of electric two-wheelers, which form the bulk of sales, declined by 6% to 143,837 units compared to 152,000 in FY20.
How did the manufacturers and experts react to the decision?
Some manufacturers such as Greaves Cotton and TVS Motor Co. have cut prices of their respective electric scooters. Senior executives of the companies are of the view that the increase in subsidies will help boost sales. According to Shamsher Dewan, vice-president and group head, ICRA Ltd, the initial cost of ownership for high-speed electric two-wheelers will incrementally reduce by 10-12% (compared to existing popular models) and result in a lower payback period. Earlier, the payback period was estimated to be four years (in terms of total cost of ownership), which now stands at three years.
What are the challenges related to the charging infrastructure?
Setting up of charging infrastructure has been a key challenge for the adoption of EVs in India. A section of experts said an increase in EV sales will increase the load on power grids, which mostly depend on electricity generated from thermal power. “Upscaling of the power grid must happen in tandem to handle the mammoth energy demand e-mobility will usher in. To make India an EV nation by 2030, we have to clean, green and strengthen our power grid," said N. Venu, CEO and MD, Hitachi ABB Power Grids in India
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