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1 April 2023: Extend FAME II Subsidy: Standing Committee

Context: 

According to the Parliamentary Standing Committee on Heavy Industry, Phase 2 of the FAME program to help pay for electric cars only reached 51.96 per cent of its goal.

About

  • The Union Ministry of Heavy Industries’ Committee on Estimates (2022-23) suggested extending the FAME II program, which was set to end in 2024. This was part of an evaluation of its electric car policy.
  • In the Union Budget that was just released, Finance Minister Nirmala Sitharaman doubled the budget for FAME II, but she didn’t change the timetable.

Significant problems were emphasized by the committee.

  • Internal combustion engine (ICE) vehicles pollute the air and add to global warming, and India imports a lot of oil.
    The price of EVs would significantly rise if government subsidies were to end.
  • The committee discovered that many startups are also operating in this industry and that if FAME II is pulled, they may have to close.
  • Getting more people to use electric vehicles is good for the environment, public health, the economy, and technical progress. Through a number of programs and incentives, India has been working to encourage the use of electric vehicles (EVs).

Data Points

  • In India, 1.2 million EVs were registered in 2022–2023, which is 2.7 times more than in 2021–2022, according to VAHAN.
  • Only 5.6% of all new car registrations in 2022–2023 were electric vehicles.

Causes of the Low Adoption of EVs

  • Because EVs are more expensive up front than ICE cars, EV adoption has been minimal. This was brought on by the high price of lithium-ion batteries, which made up 30 to 40% of the cost of the car.
  • However, compared to conventional vehicles, battery-powered vehicles have reduced operating costs.
  • Only a few towns have approved EV charging stations.

Lessons on EV adoption in Chinese

  • The Chinese government started offering generous subsidies for EV purchases in 2009; China has the world’s biggest EV market. But both the price gap and the number of buyers were substantial. As a result, the government found it exceedingly expensive to pay for the subsidies.
  • So, China’s policymakers planned to force automakers to stop getting subsidies all at once at the end of 2020, instead of doing it gradually. Automakers are now required to make sure that a certain number of the cars they sell each year are powered by batteries.
  • To avoid paying fines, manufacturers must earn a certain number of points each year, which are given for each electric vehicle they make. The points are given based on a complicated algorithm that takes into account performance, range, and energy efficiency, among other things.
  • The market for battery-powered electric vehicles (EVs) in China and found that, compared to other policies that give bigger subsidies over longer periods of time, a phase-out policy may be the most cost-effective way to boost sales while keeping costs down.

Suggestions

  • The GoI needs to show that it believes in the Indian EV market and “plug in” the funding gaps with a successful subsidy program like FAME II, which is about to end.
  • At this time, it would be helpful to look at a leading electric transportation economy, like China, and learn from what they have done.
  • Boost the facilities for charging.

FAME 

  • The Union Ministry of Heavy Industries created the Faster Adoption and Manufacturing of (Hybrid and) Electric cars in India (FAME India) Scheme in 2015 to encourage the use of electric and hybrid cars in the nation.
  • With total budgetary support of Rs. 10,000 crores, Phase II of the plan (FAME II) is currently being implemented over a five-year period beginning on April 1, 2019.
  • There will be a focus on four areas: creating demand, technology platforms, pilot projects, and charging infrastructure.
  • All types of vehicles, like two-wheelers, three-wheelers, cars, four-wheeled passenger vehicles, light commercial vehicles, and buses, were meant to be boosted by creating markets and giving demand incentives.
  • Phase II: Most incentives are given to cars that are registered for business use or public transportation.
    Vehicles equipped with cutting-edge batteries, such as lithium-ion batteries, will be eligible for rewards.