When delivering the Union Budget for 2023–24 on February 1, Finance Minister Nirmala Sitharaman almost doubled the FAME 2 subsidy spending to Rs 5,172 crore. Compared to the Rs 2,900 crore it had set out in the budgets for 2022–2023, this represents an increase of 78%. According to the newly revealed Budget statement, the Ministry of Heavy Industries would get Rs 5,172 crore in subsidies under the FAME plan for the financial year 2023–24, or 85% of the entire Budgetary allocations of Rs 6,145 crore. Indeed the government has foreseen the future of EV and expects more acceptance by Indian consumers.
However, according to the Society of Manufacturers of Electric Vehicles (SMEV), the subsidies provided in the existing Budget are highly improbable to have a significant impact on the Ev sector because the funding allotted for FY24 will not really represent an increase in the government's aggregate investment since the FAME 2 subsidy was made official for a five-year fiscal year ending in FY24.
The government provided Rs 500 crore for FAME 2 in FY20. In FY21, this was reduced to Rs 318 crore. The government boosted the budgetary allotment to Rs. 800 crores in FY22, to roughly Rs. 2,900 crores in FY23, as well as to Rs. 5,172 crores in FY24. In fiscal years 2020–21, FAME–budget II's commitment experienced a usage rate of 46%; however, in fiscal years 22 and 23, it has been fully utilised.
According to information provided by the Press Information Bureau, as of 19 December 2022, 7.67 lakh EVs had received assistance through Phase II of the FAME India Scheme with a Consumption incentive totalling approximately Rs 3,311 crore.
Although the finance minister decided not to provide any wiggle room for the manufacturers of conventional internal combustion engine vehicles (ICEVs) in this Union Budget, the Budget did redouble its efforts to promote EVs by broadening the import taxes dispensation on capital goods and machinery needed to produce lithium-ion (Li-ion) cells for batteries and by maintaining the prices on import of essential battery components.
The report from the PIB also claimed that the Ministry of Heavy Industries sanctioned 6,315 e-buses to 65 cities, and central & state government entities across 26 states & union territories under the scheme. It has also been reported that the Ministry has sanctioned more than 2500 charging grids & stations across 68 cities in 25 states & UTs under FAME II.
In the last few years, EV sales have increased dramatically. It is hardly shocking that the EV business would eventually rule India. More than 2 lakh electric vehicles have already received government-backed subsidies, totalling to this point. (View Figures 1.1 and 1.2)
The subsidy is especially beneficial to two-wheelers. According to the statistics from the pie graphic, EV two-wheelers themselves received 76% of the subsidies in 2022. We anticipate that the increase in such spending will be about 85% in the upcoming budget. We can already see that two-wheeler batteries typically range in size from 2.5 kW to 3 kW. For EV two-wheelers, the subsidy per kW under the FAME 2 programme is Rs 15,000. In other words, if sales increase to 10,000 electric vehicles, as they undoubtedly will, then the total amount of subsidies in the upcoming budget might be for 10,000 electric vehicles with an average battery size of 2.5 kW.
It's become popular to talk about FAME-II subsidies. Due to their inability to secure FAME-II subsidies, the 2021 main competitors lost a significant amount of customer base in the second half of 2022. Many businesses are now in this situation. The amount of operating capital needed by businesses has grown as a result of the government's enhanced inspection of the 50% localization requirements and its implementation of the 100-day wait for FAME-II payments.
Whether the government sees a way to reduce the cost of producing batteries through localization and economies of scale will determine whether FAME programmes will be extended.
Although We predict that the overall budget allotment will stay the same, the Subsidy value in terms of per kWh will gradually decrease. In the third phase, it is also likely that the central government may follow the lead of the state governments and send subsidies straight to the customer account after the EV has been purchased.
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