INTRODUCTION
India has been pursuing the goal of electric mobility for several years, with the launch of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles ("FAME") scheme in 2015. The scheme aims to promote the adoption of electric vehicles ("EVs") and their components, reduce vehicular emissions, and foster domestic manufacturing capabilities. The scheme has been implemented in two phases, FAME-I (2015-2019) and FAME-II (2019-2024), with varying degrees of success and challenges.
As FAME-II is nearing its end, the Indian government ("GoI") is reportedly considering a potential third phase of the scheme, FAME-III, to further boost the EV industry in India. In this article, we will be outlining some possible areas of improvement, opportunities and expectations from FAME-III.
FAME-I AND FAME-II: A MIXED BAG OF RESULTS
FAME-I focused on providing demand-side incentives for EVs, such as upfront reduction in purchase price, as well as supporting technology development, pilot projects, and charging infrastructure. The scheme had an outlay of about USD 110 million. FAME-I was successful in providing the first impetus to EVs in India and supported about 278,000 EVs. However, FAME-I faced some criticism for subsidizing environmentally- taxing technologies, such as lead-acid batteries and mild-hybrid vehicles, and for having a slow and limited progress of implementation.
FAME-II attempted to address the issues of FAME-I by increasing the total outlay to USD 1.2 billion, expanding the scope of incentives to electric buses, two-wheelers, and three-wheelers, enhancing the minimum safety and technical standards, and introducing localisation norms for EV components. FAME-II largely succeeded in addressing the concerns of FAME-I and the EV sector has seen strong growth with the GoI's support. However, FAME-II faced challenges such as localisation implementation issues, inadequate incentives for charging infrastructure, and insufficient focus on R&D.
We have undertaken a deeper analysis into the issues faced under FAME-II in a previous article titled "Evaluating FAME-II: Insights and Road Ahead".
FAME-III: A CHANCE FOR POSITIVE REFORMS
As the government is considering a third phase of FAME, it is imperative to learn from the challenges faced in FAME-I and FAME-II, and to adopt a cohesive and comprehensive strategy to accelerate EV adoption in India. We have highlighted some potential areas of improvement and expectations from FAME-III below.
Rethink of incentive transfer mechanism
As it stands currently under FAME-II, demand incentives are offered to customers as a price reduction upon the purchase of a new EV, based on the size of the battery of the EV. These incentives are reimbursed to original equipment manufacturers ("OEMs") at a later date when OEMs submit their reimbursement claims. This mechanism has been found to be troublesome to OEMs due to issues of late payment of subsidies by the GoI and resultant shortage of working capital for OEMs.1 The GoI may consider devising a direct benefit transfer mechanism to consumers to alleviate these concerns.
At the same time, however, continuous reliance on demand incentives might create a dependency among consumers. This was seen when subsidies on two-wheeler EVs were reduced, as consumer demand waned by 25% in the month following the subsidy reduction.2 Greater emphasis is required on building robust supply chains and incentivising local manufacturing that can compete with traditional internal combustion engine-based vehicles. This may require a refocus such as through the inclusion of supply incentives including incentives on parts procurement costs.
Accentuation of localisation measures
Under FAME-II, localisation norms are in the form of deadlines for indigenisation of components. These deadlines differ for each component and category of vehicle. Typically, schemes that promote localisation such as the PLI Scheme for Automobiles and Auto Components and PLI Scheme for Advanced Chemistry Cells, include metrics for domestic value addition ("DVA") and much clearer guidelines for calculation of DVA.
However, unlike other schemes, the FAME-II scheme does not prescribe domestic value addition metric for analysis of whether a part is indigenous or imported (except for chargers where DVA of 50% is required to be eligible for incentives). In the absence of such calculation, it is unclear when components would qualify as indigenous, especially when sub-components or sub-parts of a component may be imported. Localisation issues during FAME-II led to investigations that found that seven OEMs were found to be non-compliant with localisation norms stated under the Phased Manufacturing Programme (PMP), whose demand incentives were consequently put on hold.3 These issues also led to delays in the imbursement of subsidies to OEMs, causing a liquidity crunch in the industry.4
The GoI may consider introducing minimum DVA thresholds as a prerequisite to availing incentives, as well as harmonisation of the PLI and FAME schemes with respect to DVA calculation. Further, clear guidelines may be put in place to clarify how indigenisation is required to be assessed.
Expansion of incentives to commercial vehicles
While the FAME scheme and the PM-eBus Sewa scheme include incentives for EV buses, similar incentives are not available for other commercial vehicles such as trucks. As per a recent NITI Aayog report, trucks represent just 3% of the total vehicle fleet (including both passenger and freight) yet are responsible for 53% of particulate matter (PM) emissions.5 Incentives are also not available for other commercial vehicles such as tractors and industrial vehicles such as forklifts, cranes, bulldozers etc. to switch to greener alternatives such as biofuels, high- ethanol-blend fuels or hybrid technologies. The GoI may consider expanding the target base for incentives to these vehicles, thereby promoting a significant reduction in particulate matter emissions.
Greater emphasis on charging infrastructure
Only 10% of the total incentive outlay under FAME-II was reserved for charging infrastructure. As per GoI data, there were only 8,738 public charging stations operational in the country as of July 2023. This is in contrast to over 87,000 operational fuel stations in the country.6 As EVs require a longer charging time compared to fuel filling, it is imperative that there is a need for a vastly expanded infrastructure of charging stations to match, if not exceed, the current ubiquity of fuel stations. A larger portion of the FAME scheme may be allocated towards charging infrastructure in order to accommodate the increasing influx of EVs and alleviate concerns about range anxiety among prospective buyers.
Furthermore, due to a low percentage of residential charging solutions, Indian EV owners are dependent on public charging solutions, which is generally costlier than residential charging, may include additional parking fees and involves difficulties such as waiting times, reliability issues and interoperability concerns.
As European countries have shown us, residential charging solutions are required in consonance with public charging stations in order to complement the broader network of public charging stations. This offers a reliable and convenient option for individuals to charge their vehicles overnight or during their daily routines. Thus, the GoI may consider the inclusion of incentives for resident welfare associations and residential complexes, as well as demand incentives upon the purchase of a new charger in order to support the development of a robust residential charging infrastructure across the nation.
Dedicated incentives for R&D
It is pertinent to note that India is trailing in terms of technological, scientific, and industrial innovation, and continues to rely on imports for its EV component needs. A substantial portion of FAME-I was dedicated to 'pilot projects' that focused on innovation and technological development in the field through experiments and trials. However, FAME-II is bereft of any mention of R&D altogether. In a dynamic sector like EVs, ongoing R&D are pivotal to refine existing technologies, develop cutting-edge solutions and create robust indigenous manufacturing capabilities.
For example, China had invested in R&D into these fields in early 2000s, leading to significant advancements in battery and electric motor efficiency.7 Similarly, countries such as Australia, France, Germany, Spain, the UK and the USA are investing into alternative energy technologies such as hydrogen.8
R&D into newer technologies may lead to an early mover advantage and potential intellectual property benefits. In a rapidly growing industry like that of EVs, R&D becomes especially important. The GoI may consider partnering with academic and research institutions to reduce costs and improve global market competitiveness.
LESSONS FROM OTHER COUNTRIES
Countries across the globe offer various innovative incentive solutions in order to accelerate the adoption of EVs. For example, in Norway, the government has put in place a 'charging right' for people living in condominiums and apartments, which makes it difficult for housing associations to refuse installation of charging points in parking spaces. These novel incentive ideas allow governments to overcome barriers and promote the widespread adoption of EVs.
There are several other avenues for incentives where the GoI is yet to focus on, which are available in other countries. Some examples include grants and demand incentives for purchase and installation of residential EV chargers (such as in Germany, France, UK, Spain), bonuses for conversion of ICE-based vehicle to EV via retrofitting (such as in France), exemptions from toll taxes (such as in Norway) and incentives for EV and charger financing including priority lending and cheaper interest rates (such as in Germany).
These unexplored avenues for incentives present a vast opportunity for the GoI to further encourage the shift toward EVs.
CONCLUSION
In contemplation of FAME-III, it is crucial to acknowledge the mixed results observed in both FAME-I and FAME-II. While these schemes aimed to promote EVs, reduce emissions, and stimulate domestic manufacturing, they encountered challenges and limitations in their execution.
As India mulls over the prospects of FAME-III, there lies an opportunity for significant reforms and advancements in the electric vehicle ecosystem. Key areas of improvement and potential enhancements for FAME- III include rethinking incentive mechanisms to alleviate concerns regarding delayed subsidies to OEMs while reducing consumer dependency on demand incentives. A shift towards encouraging robust supply chains and incentivizing local manufacturing is imperative, potentially through supply-side incentives. Moreover, enhancing localisation measures by introducing clear DVA thresholds would be noteworthy. Expanding incentives to include commercial vehicles, prioritizing pedestrian and cyclist-friendly infrastructure, and significantly investing in charging infrastructure are critical steps in accommodating the burgeoning EV market. Additionally, acknowledging the significance of R&D and partnering with academic and research institutions can significantly boost indigenous manufacturing capabilities and global competitiveness.
Learning from successful incentive models in other countries, such as grants for residential EV chargers, bonuses for vehicle retrofitting, toll tax exemptions, and affordable financing for EVs and chargers, can provide valuable insights for India's EV policy framework. Norway's diverse range of incentives, including the 'charging right' in residential spaces, serves as an exemplary model.
FAME-III stands as a potential beacon for India to revitalize its approach towards electric mobility, address previous shortcomings, and steer the nation towards a sustainable and vibrant EV landscape.
Footnotes
3. Please refer https://sansad.in/getFile/loksabhaquestions/annex/1712/AU1939.pdf?source=pqals
4. Please refer https://www.business-standard.com/industry/auto/unpaid-subsidies-worth-rs-1-200-cr-leading-to-liquidity-crisis- smev-123041800969_1.html
5. "Fast Tracking Freight in India: A Roadmap for clean and cost effective goods transport, Niti Aayog, RMI India, 2021, https://www.niti.gov.in/sites/default/files/2021-06/FreightReportNationalLevel.pdf
7. Please refer https://www.technologyreview.com/2023/02/21/1068880/how-did-china-dominate-electric-cars-policy/
8. Please refer https://www.iea.org/reports/global-hydrogen-review-2022
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