Government's Decision to Discontinue FAME-II Scheme Could Hinder India's Transition to Electric Vehicles

I bring to you the latest developments in the electric vehicle (EV) industry in India. Reports suggest that the government may discontinue the FAME-II scheme beyond FY24, owing to alleged misuse and fraudulent claims by EV manufacturers. The government has withheld subsidies of about Rs 1,100 crore for over a year due to manufacturers allegedly claiming false localization of parts.

The decision to discontinue the scheme has several ramifications for the EV stakeholders and the country's transition towards disincentivizing fossil fuel vehicles. The government's inability to announce a decision adds to the number of issues and areas where weak execution is the biggest stumbling block in achieving its ambitious plans. Additionally, the cash flows of companies that have doled out discounts are jeopardized until the matter is resolved, raising questions on the governance of companies.

Moreover, dealers could be straddled with inventory if the issue is not resolved, and the negative publicity could hinder the transition to EVs. While monthly sales, especially in the case of electric two-wheelers, are revving up, there has been a slowdown in month-on-month growth rate.

Going by media reports, the government may choose to pull the plug on FAME-II subsidies after FY24 and route future incentives through the Production Linked Incentive (PLI) scheme. While FAME subsidies are disbursed at the point of vehicle sale, PLI benefits are directly given to manufacturers. The final goal is to bring down the cost to the end-user and spur demand.

In conclusion, I think that the government review its policy, ensure that it plugs the loopholes that allow for fraudulent practices instead of pulling the plug off incentives that are critical to push EV sales and sustain the confidence of numerous stakeholders.

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