The removal of subsidies will affect the growth of EVs as currently the businesses in the space cannot recover their capex without these subsidies
Speaking at Inc42’s The Makers Summit, Agarwal called the issue of misappropriation of FAME-II subsidies a “temporary glitch”
Log9 CEO Akshay Singhal highlighted the issues with the execution of the government’s policies for promoting the adoption of EVs
Amid allegations of misappropriation of subsidies under the Centre’s Faster Adoption and Manufacturing of Electric Vehicles in India (FAME-II) scheme and doubts about the continuation of the scheme beyond its deadline, Arpit Agarwal, director of Blume Ventures, believes that the growth in the electric vehicle (EV) space would take a hit if the government discontinues the subsidies.
Speaking at Inc42’s The Makers Summit 2023, Agarwal said, “The challenge in the market is… a lot of business models are currently, unfortunately, dependent on policy because parity in terms of capex (for example) of a three-wheeler is still dependent on having access to the subsidy. Over the next, maybe, two years, the volume will become large enough that they will have capex parity without subsidy. But till that happens, it is going to slow down the adoption of EVs if subsidies go away.”
It is pertinent to note that the FAME-II scheme, which has a total outlay of INR 10,000 Cr, is going to end on March 31, 2024. While EV players have been calling for extending the deadline, the government has not taken any such step so far. As per some reports, the government is unlikely to extend the scheme beyond FY24.
The FAME-II scheme aims to support 5 Lakh electric three-wheelers, 10 Lakh electric two-wheelers, 7,000 ebuses, and other EV categories in the form of demand incentives. As of February 2023, 8.8 Lakh EVs have been supported under the scheme, including 81,172 electric three-wheelers.
Highlighting that the government would also be aware of the adverse impact that ending the subsidies would have on the sector, Agarwal said, “My bet is that the government will persist with as much EV policy and subsidies as required till the adoption really takes off on its own.”
However, the approaching end of the scheme is not the only worry for the EV space. Currently, several two-wheeler EV players including Hero Electric, Okinawa Autotech, and Jitendra EV are under the government’s scanner for allegedly claiming benefits of the scheme without adhering to the minimum localisation requirements.
The Centre has also stopped subsidies for some players for violation of the norms and is reportedly also mulling recovering the wrongly claimed subsidies.
Calling the issue a “temporary glitch”, Agarwal said that a few manufacturers might have miscalculated that they could get away without complying with the “spirit” of the policy.
“Either those people’s (EV manufacturers’) volume will be taken by someone else in the market or they will also comply sooner or later with the policy in the right spirit,” he added.
However, Agarwal believes that the government has done enough to boost EV adoption with its policies, and now the market has to play its role.
It must be highlighted that several experts have pointed out that while the government’s policies for the EV space have been impressive, their execution has been lagging. Till February, only INR 1,217 Cr was utilised under the FAME-II scheme out of the budgetary allocation of INR 2,903 Cr for FY23.
“While the policies are there, I think one of the biggest bottlenecks is the execution of these policies. If you look at the FAME-II policy, it was so surprising to know that there is a two-member team sitting in the DHI (Department of Heavy Industries) releasing all subsidies for the entire country. That’s where the real bottleneck lies,” said Akshay Singhal, CEO and founder of Log9 Materials, during the session.