The union finance ministry has approved approximately Rs 3,500 crore for second phase of Faster Adoption & Manufacturing of Hybrid and Electric vehicles (FAME) policy to press on the sale of electric automobiles in India, Moneycontrol has learnt.
“The ministry of finance has approved a corpus of about Rs 3,500 crore to fund FAME II scheme over the next five years,” a source in the know said.
Department of Heavy Industries (DHI), who is spearheading the scheme, had sought close to Rs 12,256 crore from the government to fund the scheme which will provide subsidy to only public transport like buses and passenger fleet (cabs) in the second phase.
Moneycontrol first reported in June that finance ministry had returned the draft note circulated by DHI after it raised questions over the funding mechanism of the scheme.
An official had told Moneycontrol that the proposal sent by DHI was returned by finance ministry seeking a more comprehensive scheme framework.
FAME scheme was launched by union ministry for heavy industries in 2015 for two years to subsidise the purchase of electric vehicles. Under the scheme, the government provides subsidy up to Rs 22,000 on two-wheelers, Rs 61,000 on three-wheelers and Rs 1,87,000 on four-wheelers.
The first phase of the scheme, which was to end in March 2017, was extended till March 2018. As the draft for the second phase failed to get the government’s nod till then, it has been extended till at least September this year.
In a meeting held on Wednesday, the finance ministry met various stakeholders including officials from road ministry, department of heavy industries and ministry of electronics and information technology among others to discuss the scheme.
“FAME II scheme has been accepted by the finance ministry… This time a flat rate of Rs 10,000 per kWh for two-wheelers and Rs 20,000 per kWh for buses has been set as subsidy,” another person privy to the development said.
According to the note prepared by executive finance committee (EFC), and reviewed by Moneycontrol, about Rs 450 crore have been kept aside for high speed two-wheelers, Rs 300 crore have been kept for low speed two-wheelers, Rs 100 crore for light commercial vehicles and Rs 2,500 crore for buses.
“Although all Electric Vehicle Initiative countries do apply purchase and demand subsidies, a comparison of the purchase cost and the total cost of ownership (TCO) for EVs and internal combustion engine (ICE) vehicles across European markets suggests that financial incentives are most effective when they minimise the EV purchase premium and come with a TCO advantage compared with ICEs,” the note said.
The note further added that in order to hand-hold the EV industry, Centre should consider including “200 percent weighted deduction on investment made under R&D, for Income Tax calculation purposes, beyond 2020”.
Sources said that the department of expenditure has accepted the note in entirety barring a clause related to set up a fund to provide subsidies to startups.
“The finance ministry has approved most of the things mentioned in the note except for a start-up fund,” the second source added.
The proposed fund of about Rs 500 crore was for startups interested in manufacturing electric vehicles.
“DHI had proposed a fund for startups interested in starting EV manufacturing. The Finance ministry, however, has concerns about it since the mechanism to provide that subsidy was not clearly mentioned in the note circulated by the EFC,” the source added.
The fund would have been similar to M-SIPs or modified special incentive package scheme. Such schemes provide the capital subsidy to firms setting up their manufacturing units in special economic zones and/or reimbursement of central taxes and duties.
Sources added that the government is focusing on providing ‘non-fiscal’ incentives to the electric automobile industry.
Moneycontrol reported in June that Centre was planning non-financial incentives to promote electric mobility in the country.
These included tightening of fuel efficiency norms, green number plates for electric cars, standardisation of charging standards and shoving cab aggregators to include a certain percent of electric cars in their fleet.
Sources also said that government will strongly push for CAFÉ norms to promote electric fleet in India.
Corporate average fuel efficiency (CAFÉ) norms require cars to be 30 percent or more fuel efficient from 2022 and 10 percent or more between 2017 and 2021. The efficiency will be judged on the basis of fuel consumed per 100 kilometers.
“So automakers will have to convert certain percent of their fleet into electric… ,” the source said.
The centre is now planning other non-fiscal incentives like exemption of toll taxes for electric vehicles during initial few years and providing permits to run electric three-wheelers across the country.
“There are several other ministries working on EVs… Consider ministry of road transport, they have brought green number plate for EVs for easy identification,” said one of the sources.
“Finance ministry has decided to reduce import duty on motor and charging parts of automobiles. While motor was exempted, parts were taxed at 7.5 percent custom duty which touched 10 percent with cess,” the person said adding that the part now is exempted from such tax.
FAME II scheme is expected to be implemented across 10 cities selected by Niti Aayog, government’s policy thinktank, on a pilot basis.
As far as charging stations are concerned, media reports have suggested that the government is planning to set up 30,000 slow charging stations and 15,000 fast charging stations over the next 3-5 years to improve electric infrastructure.
The process, however, is yet to be finalised as India hasn’t decided on standard charging protocol.
“There are five kinds of protocols worldwide for charging. So India has to choose one of them… DHI has a budget of Rs 50 crore for charging infrastructure but the ministry of power is yet to give the green signal,” sources said.
Among the protocols available, including combined charging system (CCS- European), CHAdeMO (Japanese), GB/T (Chinese) and Tesla Superpower, European and Japanese automakers have been nudging New Delhi for their standards due to huge market reach.
New Delhi intends to increase the penetration of electric vehicles from current one percent to at least 40 percent by 2030; specifically under the new models segment being sold after 2030. This target translates to 4 million electric cars considering India becomes 10 million cars a year market by 2030.
Of the one percent EVs in India, 95 percent are low-speed scooters. Furthermore, against three million fuel based cars in India, there were merely 2,000 electric cars in 2016-17. The number stands at 23,000 for e-scooters against more than 16 million fuel based two-wheelers.