The withdrawal of subsidy provided to E two-wheelers under the FAME II (Faster Adoption and Manufacture of Electric and Hybrid Vehicles) scheme last month has once again ignited a debate on two counts: are industry-specific subsidies a good idea; and once in force, when is the right time to withdraw it?

By way of background, the FAME II subsidy for consumers is given on the power of the battery. This has come down to ₹10,000/kWh now, from ₹15,000/kWh, subject to a subsidy cap of 15 per cent, against 40 per cent till recently. If an EV is priced more than ₹1.5 lakh (the minimum value to qualify for a subsidy) only 15 per cent of the ₹1.5 lakh will be given as a subsidy irrespective of kWh capacity. The OEMs are meant to adhere to certain battery standards while sourcing 50 per cent of their content locally. The new pared levels of subsidy, introduced last month, mark a return to the regime that prevailed about four years ago. It appears that rumblings over misuse of the subsidy prompted this rollback. Questions have been raised over the OEMs inflating the MRP and billing customers for the chargers, despite receiving a subsidy. The Centre is believed to have held back subsidy payments amounting to about ₹1,200 crore. The question here is whether the concept of an industry-specific subsidy inevitably creates such complications.

The pre-reform era was replete with tales of gold-plating by fertiliser units. The PLIs for a slew of sectors, based on turnover criteria, should not be open to such misuse – of these being overstated to receive the benefits. A robust periodic appraisal is in order. While the promotion of specific industries perhaps makes sense in the short term, in a context where India has been inundated by imports (the infant industry argument), it needs to be kept in mind that generalised incentives such as provision of infrastructure and creation of industrial zones to this end are more viable long-term options. They provide a level playing field to all, with chances of patronage and misuse being reduced to a minimum.

On the more limited point of whether this subsidy withdrawal for EVs is too drastic, the answer is a categorical ‘no’. Sales of EVs are gaining momentum anyway. With total EV registrations touching 1.2 million units in FY23, E2Ws accounted for 62 per cent of this at 7.27 lakh units, while E3W volumes stood at 4 lakh units, where e-rickshaws accounted for more than 90 per cent. E2W penetration crossed double digits — between 10 and 16 per cent — in Kerala, Karnataka, Maharashtra, Delhi, and Gujarat last fiscal. From a policy perspective, it may might sense to co-relate EV subsidies to petrol prices in the long term. A big incentive is not necessary at current fuel prices; the saved amount can be set aside for EV charging infrastructure as well as efforts to dovetail this push with electricity produced from renewable sources. EVs would cease to be green if they were to be produced from conventional sources.

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