FAME-II Subsidy Slash Has 2-Wheeler Players Flummoxed

Murali Gopalan
23 May 2023
06:38 PM
3 Min Read

The abrupt cut in the subsidy from 40% to 15% means that delayed vehicle registration could pose problems in recovery of subsidies for manufacturers.


With barely a week to go before the revised FAME II (Faster Adoption of Manufacturing of Electric Vehicles in India) subsidies come into effect on June 1, manufacturers of electric two-wheelers are a worried lot.

The biggest concern is that delayed registration of vehicles — sold to customers before the gazette notification of May 21 announcing the slashed subsidy — could pose problems when it comes to compensation to OEMs. For instance, States like Telangana take a month to register vehicles while this is around a week in other regions. Where online systems are efficient, this takes only a day and there are no complexities as a result.

Effective June 1, the demand incentive for electric two-wheelers will be Rs 10,000 per kWh while incentives will be capped at 15% of the ex-factory price, down from 40%. It is this abrupt turn of events that has had manufacturers nonplussed since they thought they would be given sufficient time to prepare for the transition.  

During the higher subsidy regime, vehicles produced at the plant were then despatched to dealers after manufacturers deducted this 40% subsidy. Once dealers sold these to customers, these electric scooters had to be registered at the local RTO after which all the invoice details were uploaded. The 40% subsidy was then paid to manufacturers after sufficient scrutiny even while the entire exercise could last even up to four months.

Abrupt Announcement 

“Manufacturers had no choice but to wait but this did not matter since there was a system in place even while the process was cumbersome,’ says an auto industry executive. However, the abrupt announcement of slashing this subsidy from 40% to 15% with barely a week remaining to reboot procedures has left everyone in a state of flux.

“Just imagine what this would mean in those States where registrations are delayed. Where manufacturers offered vehicles at 40% discount to dealers as part of FAME-II, they are not going to be able to recover this entire subsidy now since it is now reduced to 15%. Who is going to step in and help them out?” wonders the executive.

According to him, nobody has any cribs about the subsidy being slashed since all industry stakeholders knew this was not going to last forever. However, he believes some time ought to have been given for a gradual phaseout for better stock planning and ensuring that nobody lost out on recovering the subsidy.

“Now, thanks to this disruptive move, manufacturers will be at their wits end in getting things in order. Dealers will be anxious too and there is no way some States can be compelled to speed up the registration process. India does not work that way,” says another auto industry official.

Chaos Galore 

Between now and June 1, he adds, there will only be chaos all around with nobody having a clue on how to handle the situation. “OEMs will end up bearing the brunt since they have to get back their dues and, in this scenario, it is not going to be an easy task,” continues the official.

As he puts it, nobody has time now to be concerned about the inevitable price hike of electric two-wheelers and what this implies for the customer. The increase is expected to be in the range of INR 15,000-40,000 for different categories of scooters but the top priority now is to ensure that OEMs do not lose out in getting back their entire dues under the FAME-II policy.

“Yes, customers are not going to be comfortable with the idea of paying more for their electric scooters from June 1 but many will appreciate the fact that the operating expenses will still be lower than using a conventional ICE (internal combustion engine) two-wheeler,” says the executive quoted earlier. 

He does not believe that the higher price tag will compel buyers to shift loyalties to entry-level motorcycles which have seen their sales languishing for many months now. “In my view, that is a remote possibility given that petrol still costs upwards of INR 100/litre. Electric is still a far more pragmatic option,” he adds.

Once Bitten, Twice Shy 

Manufacturers are also preparing themselves for a zero subsidy regime post March 2024 when the Centre will, in all likelihood, knock off the 15% that is in force now. None of them wants to experience the current mess of ensuring that retailed vehicles need to be registered before June 1 in a pressure cooker-like setting and would rather be prepared well in advance.

“All of us have gone through high pressure situations before like the jump from BS IV to BS VI in a span of less than 36 months. What we prefer is some method in the madness and not have surprises sprung at us like this,” says the executive. 

In his view, everyone within the ecosystem knew that subsidies would not last forever except that they could have been spared the disruption of running from pillar to post and getting things in order with little time on hand. It now remains to be seen how long manufacturers will have to wait in getting their money compensated given the added complication of delayed registrations. 

Future Shock

“In a way, it is better to operate without any subsidies and let the market decide on who wants to buy an electric two-wheeler,” says the executive. For now, it is quite evident that the Centre is paying greater attention to the PLI (production linked incentive) scheme targeted at higher domestic manufacturing which, unlike FAME-II, may have fewer bureaucratic hurdles to overcome. 

The following months will also indicate if the electric momentum has been derailed following the slash in subsidy. By the end of the day, India is a price-sensitive market — or value-conscious as others insist — and customers will decide what is good for them. It will also be an acid test for the Centre in getting market feedback on its electric mobility initiatives.

Also Read:

Fame II Subsidy Slashed To 15% From 40% For E2Ws

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