INTRODUCTION

The turn of the decade marks the beginning of a new era for the Indian automotive industry. With increasing pressure from environmental lobbyists for the reduction of carbon emissions, and the push for adoption of electric vehicles (EVs) by Central and State Governments, the Indian automobile industry is all set for a dynamic shift from Internal Combustion Engines (ICE) to Battery Operated Vehicles (BOVs). According to an independent study conducted by the Council on Energy, Environment and Water (CEEW), India’s EV market could be worth USD 206 billion by 2030.1 The Indian Government has taken various initiatives to ease the transition into the upcoming EV market. One such major initiative was the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) scheme. In this article we have highlighted some important initiatives taken under India’s FAME-I and FAME-II policies and its recent amendments by the Government for the promotion of the EV industry in India.

FASTER ADOPTION AND MANUFACTURING OF (HYBRID &) ELECTRIC VEHICLES IN INDIA (FAME)

In order to fast track the introduction and manufacturing of a full range of EVs in the country, a National Mission on Electric Mobility was approved by the Government of India in 2011. Two years on, in 2013, the Government rolled out a dedicated plan for EVs and launched the National Electric Mobility Mission Plan, 2020 (NEMMP) for the dual purposes of promoting the EV and Hybrid Vehicle (HV) markets, and achieving national fuel security. The NEMMP was formulated after an in-depth study and analysis of demand creation, research and development strategy, supply incentives, and the infrastructure needed for a full range of EVs. The NEMMP, ultimately, is the basis for all the initiatives, schemes, policies and other interventions of the Indian Government for electric mobility.

As part of the NEMMP 2020, the Department of Heavy Industry (DHI) formulated a scheme called FAME (Faster Adoption and Manufacturing of Electric Vehicles) in India in 2015 to support the development of both the HV and EV markets, as well as that of their manufacturing eco-systems. The overall FAME scheme was initially proposed to be implemented for a period of 6 years, i.e., till 2021.

a. FAME I

Phase I of FAME (FAME-I) commenced on April 1, 2015 with an outlay of INR 795 Crores which was subsequently enhanced to INR 895 Crores. FAME-I had the following four focus areas for the EV ecosystem: (i) technology development, (ii) demand creation, (iii) pilot projects, and (iv) charging infrastructure. Initially approved for a period of 2 years, FAME-I was extended time and again, until March 2019.

b. FAME II

After a review of FAME-I, the DHI formulated Phase II of FAME (FAME-II) for further enhancing the adoption of electric mobility and the development of its manufacturing eco-system in the country. FAME-II commenced with effect from April 1, 2019 and was rolled out over a period of 3 years. The FAME-II scheme was implemented through the following verticals – (i) incentivising demand for EVs, (ii) establishing a network of charging stations, and (iii) administering awareness campaigns, such as publicity and information, education & communication (IEC) activities.

FAME-II makes demand incentives available to buyers, i.e. end users and consumers, in the form of an upfront reduced purchase price. The difference in the purchase price is reimbursed to the original equipment manufacturer (OEM) by the Government. An OEM is defined under FAME-II as “any proprietor, private or public company, or partnership firm manufacturing any vehicle covered under FAME-II and meeting such percentage of localisation2 , as may be notified from time to time”. OEMs must register themselves with the National Automotive Board of the DHI, to avail the benefits provided under FAME-II.

The following table summarises the particulars of demand incentives provided under FAME-II:

Particulars Details for Demand Incentives
Eligibility
  • Buses (only e-buses)
  • Four wheelers (EV, PHEV and SHEV 3)
  • Three wheelers (electric) Including registered e-rickshaws;and
  • Two Wheelers (elecetric)
Quantum
  • Demand incentive of INR 15,0004 per KWh for electric 2 wheelers (2W) and INR 10,000 per KWh for all other EVs (including PHEV and SHEV) except e-buses; and
  • Uniform maximum demand incentive @INR 20,000 per KWh for e-buses, subject to there being competitive bidding amongst OEMs for the contract in question.
Qualifying criteria for EVs
  • The EV’s ex-factory price is less than the prescribed threshold – i.e., INR 15 lakh for 4 wheelers and INR 2 crores for e-buses;
  • The EVs are manufactured indigenously with such percentage of localisation, as may be notified;
  • The EV meets the provisions contained in Central Motor Vehicle Rules, 1989 in terms of type approval, classification, categorization, definition, road worthiness, registration etc.;
  • The EV is certified by testing agencies;
  • The EV comes with a 3-year comprehensive warranty (inclusive of battery warranty), provided by the manufacturer;
  • The EV satisfies the minimum technical eligibility criteria with regard to performance and efficiency of EVs; and
  • The EV is fitted with suitable mileage monitoring devices to determine the total fuel savings on a real time basis.
Disbursement
  • For all segments except e-buses: The demand incentives shall be disbursed through an e-enabled framework and mechanism set-up under the DHI.
  • For e-buses: Based on an operation expenditure (OPEX) model adopted by the relevant state or city transport corporations and other public entities working in the transport sector to augment the fleet of EVs.

AMENDMENTS TO FAME II

On June 11, 2021 the DHI vide its notification S.O 2258(E) introduced some amendments to FAME II to further incentivise the adoption of EVs, especially electric two wheelers (2W), in India.

Following are the major changes in the FAME II policy in relation to 2W EVs, as per this latest amendment:

  1. Firstly, it carves out a special subsidy of INR 15,000 per KWh for electric 2W, a 50% increase for this category of vehicles, from the previous uniform demand incentive of INR 10,000 per KWh for all vehicles except e-buses; and
  2. Secondly, it raises the ceiling on incentives for 2Ws from 20% to 40% of the cost of the vehicle, bringing this on par with the cap for electric buses.

As a result, manufacturers of two-wheeler electric vehicles (2W EVs) are expected to benefit enormously from these amendments. The increased incentives will ensure that the total cost of 2W EVs is significantly reduced and to a large extent bridges the gap between the upfront costs of EVs and their ICE counterparts. The manufacturers are expected to pass on the added benefits of this to the consumers, further boosting the demand for 2W EVs in India which has seen a steady increase despite the pandemic.

In addition to the incentives for 2W EVs, the DHI has also introduced aggregation as a key method for bringing the upfront cost of three-wheelers (3W) EVs to an affordable level, and at par with its ICE counterparts. Energy Efficiency Services Limited (EESL), a joint venture of NTPC Ltd, Rural Electrification Corp. Ltd, Power Finance Corp. Ltd and Power Grid Corp. of India Ltd. will aggregate demand for 3,00,000 electric three-wheelers, from multipleuser segments.

For electric buses, Mumbai, Delhi, Bangalore, Hyderabad, Ahmedabad, Chennai, Kolkata, Surat, and Pune have been identified as the initial targets wherein EESL will aggregate demand on an OPEX basis. This move to aggregate demand and supply within the EV market is a bid to bringing down the cost of 3W EVs and ensure greater engagement of electric vehicles in the public transport systems of these cities. The exact details of implementation will be worked out by EESL.

CONCLUSION

All said and done, the EV industry in India is presently at a very nascent stage. However, if the current projected growth rate is something to go by, India is on its way to becoming one of the leading EV markets, worldwide. This fact is further strengthened by the Government’s committed and consistent efforts in the recent years, to increase the adoption of e-mobility across market segments, through various demand and supply incentives as well as through dedicated EV policies at the national and state levels.

Despite all the factors favouring a demand shift towards electrification of vehicles, the Indian customer base is still reluctant and hesitant to make the shift, primarily because of early adoption barriers such as the lack of sufficient charging infrastructure, higher capital costs, range anxiety, long charging times, inconsistent electric supply, electricity tariffs and so on.

However, the recent amendments to the FAME II policy are expected to hike demand for 2W and 3W EVs in India, across consumer segments, and it is initiatives like these that would push the Indian EV industry towards faster growth and adoption, as well. Exciting times ahead, for electric vehicles in India!

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About the Authors:

Praveen Raju is a founding partner of Spice Route Legal, and the Head of our Corporate Practice Group, with close to two decades of experience advising clients across the globe on corporate and commercial transactions. In addition to regular commercial advisory, and his focus on cross border transactions, Praveen has honed a special expertise in the healthcare, and pharmaceuticals, and energy and renewables sectors.

Aakash Agarwal and Preethika Nannapaneni are associates with Spice Route Legal’s corporate practice group, with a focus on the energy sector, especially new and alternative energy.

Footnotes

1Singh, V., Chawala, K., & Jain, S. (2021). Financing India’s Transition to Electric Vehicles. Retrieved from https://cef.ceew.in/solutions-factory/publications/CEEW-CEF-financing-india-transition-to-electric-vehicles.pdf
2EV manufacturers must locally source at least 50% parts so as to receive FAME II subsidies
3PHEV: Plug-in hybrid electric vehicles; SHEV: Strong hybrid electric vehicles
4Inserted vide notification. S.O 2258(E), June 11, 2021

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