With just a few months left for the FAME II—Faster Adoption and Manufacturing of Hybrid and Electric Vehicles—scheme to run its course, there is much debate on whether it should be continued or not. One hears the department of heavy industries is keen to come out with a new variant—FAME III. However, the finance and other related ministries are reportedly not in favour of such a move. Perhaps it is time that the government looks at a modified production-linked incentive scheme for the automobile sector. This could be done by subsuming the current subsidy under FAME given to two-, three- and four-wheelers used for public transport.
Currently, there are two PLI schemes for the auto sector, one for autos and auto components with an outlay of Rs 25,938 crore while the other one is for advanced-chemistry cell batteries with an outlay of Rs 18,100 crore. Rather than rolling out a FAME III with a bigger outlay, it might be more practical to have a composite PLI scheme. This would help the government, which is working on sops to enable global players like Tesla to set up a plant in India. A modified auto PLI (PLI 2.0) including four-wheeler EVs for private use can be sold as an attractive policy package.
As it is, the FAME scheme needs to be modified if it is to be extended beyond March 2024. Given allegations of several two-wheeler manufacturers having wrongfully claimed subsidies, a change in approach is called for. The companies were eligible for subsidies only if they used components made in India. Around seven of them are alleged to have claimed subsidies despite assembling vehicles with imported components. The government has demanded a refund of “wrongfully-claimed” subsidies of around `469 crore.
Since the disbursement of PLI incentives is done on the basis of pre-determined incremental sales and production targets, there would be no scope for players to indulge in any such irregularities. In fact, PLI schemes have been modified for telecom products and IT hardware schemes to make them more attractive; a change for the auto sector would not mark any big shift in policy. However, if the FAME scheme is ended, direct price subsidy to consumers would not be possible. At the same time, promoting EVs only through subsidies may not be the best approach as sales may get impacted once they are withdrawn. Granting subsidies in perpetuity is not a feasible option.
States could be encouraged to offer certain incentives to buyers and to the manufacturers over and above the PLI benefits, much like has been devised for the semiconductor design and manufacturing scheme. Further, duty relaxations on components can be provided and manufacturers can be asked to scale up local value addition over a longer period, which would make pricing competitive in the short term. Apart from being fair to all the parties, auto PLI 2.0 would have the benefit of encouraging global players to set their manufacturing chain in the country while making EVs attractive to the buyers.