Budget 2023 Expectation: SMEV seeks extension of subsidies for electric vehicles under FAME-II

Society of Manufacturers of Electric Vehicles on Tuesday sought extension of subsidies for EVs under the FAME II scheme and also include light to heavy commercial vehicles in it to promote electric mobility.

In its pre-Budget recommendations, the industry body also called for a uniform 5 per cent GST on spare parts for electric vehicles.

"The validity of FAME II is set to expire on March 31, 2024. We believe FAME's validity needs to be extended since we have yet to meet the penetration the subsidy was supposed to catalyse," Society of Manufacturers of Electric Vehicles (SMEV) said in a statement.

The new FAME II scheme should be linked to e-mobility conversion rather than being time-based, it added.

The EV industry body said market trends suggest that e-mobility, particularly electric two-wheelers (E2W) has the potential to continue growing once it reaches 20 per cent of the total two-wheeler market.

"The subsidy can be tapered thereafter," it said, adding the FAME II scheme should have provisions to directly transfer the subsidy to customers.

SMEV also suggested inclusion of light commercial vehicles (LCV) and medium and heavy commercial vehicles (M&HCV) on a project-mode basis as India must prepare for the transition to e-mobility in trucks and heavy commercial vehicles in three to four years.

For this, it said,"Increase the scope of FAME to include commercial vehicles on a project mode basis. Today, trucks account for over 40 per cent of India's fuel consumption and over 40 per cent of the greenhouse gas emissions across the road transport sector."

Further, SMEV also sought expansion of the FAME II subsidy to electric tractors. On taxation, SMEV said while 5 per cent GST is levied on electric vehicles, for spare parts, there is no clarity and the industry ends up paying 28 per cent, except for batteries.

"The request, therefore, is for levying a uniform 5 per cent GST for all EV spare parts," it said.

SMEV also asked the government to consider reducing the basic customs duty on cells to zero until these are manufactured in India as "the manufacturing of Lithium-Ion cells within the country is still in its nascency ".

It also said the PLI (production linked incentive) scheme drafted for promotion of electric mobility "is not designed for startups and MSMEs to benefit from it" and asked for their inclusion in the PLI ambit.

"With the PLI scheme favouring only established big corporates and multinationals, startups and MSMEs tend to lose because they are already struggling for capital," it added.

SMEV also asked the government to allow pure EV companies to trade credits acquired through production with internal combustion engine OEMs (original equipment manufacturers) as pure EV OEMs are not incentivised under CAFE (corporate average fuel efficiency) II norms.

In order to further accelerate electric mobility in the country, SMEV said EV financing needs to be included as part of priority sector lending to ensure more pools of capital are unlocked, while also drawing the government's attention to help reduce the interest rates charged to EV customers.

"For EV penetration, a critical requirement is to enable a wide network of charging infrastructure. The government is required to provide a CAPEX subsidy of 50 per cent for setting up charging infrastructure across the country," SMEV added.

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With Union Budget 2023?24 to be presented at a crucial juncture of geo-political uncertainties, high inflation, and slowing world economic growth, SMEV hoped that it would help the EV industry move forward on its way towards faster adoption of EVs.

"Calibrated steps will be needed to maintain the ongoing positive economic growth curve. The industry can further go through a phase of an unstable supply chain if a recession hits the major markets and the extremely rigid stand taken on some of the policies like FAME on premature localisation," it added.

The EV industry is looking forward to enhanced support for battery manufacturing in India and further reductions in import duties on raw materials, SMEV said.

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