FAME II Fiasco Explained

Taking a strong action against wrongly claimed incentives under the FAME II scheme, the central government has sent recovery notices totalling INR 469 crore to seven companies.

The companies that have received the notice include Hero Electric, Okinawa Autotech, Ampere EV, Revolt Motors, Benling India, Lohia Auto and Amo Mobility — for allegedly violating local sourcing norms. While Benling India has asked for the due amount to be deducted from future payments of subsidies, other EV companies have been asking the government for relief on the payments.

According to media reports, companies that are under investigation for wrongly claiming subsidies will have to first refund the money to the government, and only then would they be allowed to continue participating in the scheme.

According to a media report, the government of India is working on the next phase of the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME III) scheme. Besides EVs, the new scheme is likely to cover alternative fuels as well.

FAME Introduction

Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME-India) Scheme was launched under National Mission on Electric Mobility in 2011 to promote manufacturing and sales of electric vehicles in the country. In the first phase, the focus was on electric two-wheelers, wherein the government offered a 40 per cent subsidy on the selling price.

The First Phase of the scheme was initially approved for a period of two years, commencing from April 1, 2015. The Scheme has been extended from time to time, with the last extension allowed for a period up to March 31, 2019 . It is under the frame work of Demand Incentive Disbursement Mechanism. Incentive amount has been determined for each category of vehicle like Mild Hybrid, Strong Hybrid, Plug-in Hybrid and Pure Electric technologies and battery specification.

Under FAME II, the subsidy on electric two-wheelers was slashed to 15 per cent.

Fiasco

Last year the government cracked down on electric vehicle OEMs following the emails from whistleblowers allegedly stating that some companies were claiming incentives for local manufacturing wrongly since they were using foreign-made parts.

In this email, two companies were mentioned including Hero Electric and Okinawa following which the government suspended subsidies for the two EV makers, and launched an investigation to weed out others indulging in similar practices.

Meanwhile, Society of Manufacturers of Electric Vehicles the SMEV of which Hero Electric is a part of the management committee released a statement according to which a group of individuals with vested interests were responsible for sending emails aimed at defaming certain EV manufacturers.

The issue around the FAME II came to light in August last year when the Ministry of Heavy Industries started to focus on domestic manufacturing of components used in the making of EVs and domestic value addition.

First, Hero Electric and Okinawa Autotech bore the wrath of government for allegedly flouting minimum localisation norms of the FAME-II scheme. Subsequently, a probe was also started against several other players, including Revolt and Ampere Vehicles. 

Amid all this when the probe was ongoing, other electric vehicle companies including Ola Electric, Ather Energy, TVS, and Hero MotoCorp were alleged to have kept their vehicle prices artificially lower to claim FAME-II subsidies.

Earlier, electric two-wheelers were to get a maximum subsidy of 40 per cent on the total cost of the vehicles under FAME-II if their maximum ex-factory price was INR 1.5 Lakh per unit. However, after finding misappropriation of FAME-II subsidies by EV players, the government recently slashed the incentives to 15 per cent of the ex-factory price of electric two-wheelers from 40 per cent. It also cut the demand incentive to INR 10,000/kWh from INR 15,000/kWh earlier.

FAME 0.3

The central government said that it analysing the proposal sent by various EV agency including FICCI and SIAM for FAME 3.0. According to the reports, a revamped subsidy likely to include light commercial vehicles as well as funding for research on developing homegrown solutions for the sector.

According to an official, the government is in the process of analysing the proposal. The question is whether another round of FAME is needed when Production-linked Incentives (PLI) has already been announced.

Meanwhile, a fresh tender for 20 gigawatts of advanced chemistry cells is expected to be issued next month, following consultations with industry players scheduled next week. In the first round, Reliance and Ola were among successful bidders. Data available with the ministry showed that electric two-wheelers currently account for less than 5 per cent of the sales, although some cities, especially some cities in the South, had seen their share rise to almost a quarter of new registrations.