Mint Primer: How the budget can push electric vehicle sales

The EV industry in India is in need of a push, with growth beginning to taper. At least part of it is due to a cut in subsidies earlier this year. As a result, hopes are now pinned on the third instalment of FAME scheme expected to be announced in the budget on 23 July.

What is the FAME scheme?

The Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle (FAME) scheme, launched in 2015, is the umbrella programme of the government to encourage sales of electric and hybrid vehicles. It ended in March 2019 but was immediately succeeded by the second phase of the scheme with an increased corpus of 10,000 crore to fund 7,090 buses, 500,000 three- wheelers, 55,000 cars and 1 million two-wheelers. This scheme ended in March 2024. An electric mobility promotion scheme (EMPS) was launched in the interim before a third version is rolled out in the budget.

How much was allocated previously?

It has progressively increased. In the first phase, the allocation was a measly 900 crore but this was substantially hiked in the second phase. It was again revised in its last year in 2023 after funds for two wheelers got exhausted. The corpus was then hiked to 11,500 crore. By the end of the scheme, over 90% of the funds had been utilized. Electric three-wheelers fully utilized the 991 crore allocated for them followed by electric buses which utilized 94% of the funds and electric two-wheelers at 90% of the 4,756 crore allocation. The laggard was electric cars, which utilized only 64% of the allocation.

 

How has it impacted EV sales in India?

From just 2,399 units in FY2015—the year before the launch of the scheme—sales zoomed more than 7x in the first year, crossed the 100,000-mark in FY19 ​and the million unit-mark in FY23. In FY24, sales grew over 40% to 1.68 million units. In June 2021 subsidies on two-wheelers were hiked by 50%, and sales zoomed 5 times. Sales are however beginning to stagnate.

What are the reasons for the slowdown?

The decision to reduce incentives to original levels effective June 2023 led to a rise in prices and a sharp moderation in growth. In FY24, electric two-wheelers sales grew 30% when in the previous year sales had nearly trebled. Electric car sales missed the 100,000-unit target though more models were launched and some manufacturers cut prices. Lack of incentives for consumers buying electric cars for personal use and stalled charging infrastructure are the main reasons for the slowdown in growth.

 

What is expected of FAME 3 ?

The industry is hoping for subsidies to be extended for individual car buyers and an increase in incentives from FAME-2 for two- wheelers—under EMPS these have gone down further. It is also expected to facilitate financing through interest subvention for three-wheelers and buses. Trucks—the last in the electrification chain but one offering the biggest environmental benefit—may be brought​ into the ambit of subsidies. A much bigger corpus is expected for chargers and battery swapping stations.