Opinion

FAME-2: Govt should have gone whole hog

N Madhavan | Updated on May 09, 2019 Published on May 09, 2019

The policy, though in the right direction, will not help the country shift rapidly to EVs and dominate the electric mobility era

The Modi government, a couple of years ago, announced that only electric vehicles (EVs) will be sold in India post 2030. This ‘aspirational target’ surprised many within the country and outside. India, till then, had only taken baby steps when it came to electric mobility.

Though a National Mission on Electric Mobility was approved way back in 2011, a plan to execute it (National Electric Mobility Mission Plan 2020) was unveiled only in 2013. It took another two years before FAME (Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India), a policy which will actually incentivise and catalyse the electrification, saw the light of the day in March 2015.

FAME, with an allocation of ₹895 crore, achieved little. The incentives to generate demand for EVs, build infrastructure and technology platforms triggered, at best, a minimal interest among the manufacturers and users.

The government kept extending the scheme every six months till March 2019 (its original implementation period ended March 2017) but only a few thousand electric vehicles were added to the roads. To give a perspective, China is adding 800,000 EVs a year. A need for a revised policy was immensely felt.

Announced in March this year, FAME-2 is a big improvement over the earlier policy on many grounds. To start with the government committed a much larger outlay — as much as ₹10,000 crore towards demand incentives and creation of charging infrastructure. The policy will be operational for three years avoiding needless uncertainty and obviating the need for last minute extensions.

That apart, the new policy learnt from the shortcomings of the previous one. The demand incentive is linked to the battery capacity (kWh or kilowatt-hour) as cost of batteries is the differential factor between an electric vehicle and an internal combustion engine. Also, it capped the extent of subsidy to 20 per cent of the cost of the vehicles (40 per cent for buses).

Localisation has been built into the policy this time. Imported electric two-wheelers had begun to enter the country as the earlier policy did not emphasise on localisation which is important to build the eco-system and create jobs.

Also, FAME-2 is outcome based as it has, unlike the earlier version, set a target for the number of vehicles that will be subsidised. It is a million two-wheelers, half a million three-wheelers, 35,000 cars and 7,090 buses. Finally, considering the dynamic state of this sector it has made the implementation flexible. The Project Implementation and Sanctioning Committee will review the work every three months and tweak the policy, if need be, to achieve the stated objectives.

In spite of these improvements, the 2.0 version of the policy falls short both in its depth as well as breadth.

The government should have gone the whole hog considering what is at stake. A successful transition to electric vehicles will significantly improve India’s energy security, improve its balance of payment position creating a growth-friendly environment for the economy and make Indian cities, which top the pollution charts, more liveable.

Above all, electrification will make India self-sufficient in mobility. Today, the country has no choice but to import advanced engine and other technologies the tightening emission norms demand. Electrification of power trains offer Indian manufacturers an opportunity to leapfrog and even become global players.

To start with, FAME-2 should not have kept private vehicles (except two-wheelers) out. The government has preferred to use available resources in the best manner way and electrifying public transport is the most optimal way.

After all, private electric vehicles, despite the subsidy, may still remain unviable unless they operate for 200 km per day or 40,000 km per year. This is understandable. But without private vehicles the scaling up of EV volumes, critical for development of the eco-system and future sustainability, will be delayed. This would force the government to continue the subsidies for a longer period. Also, it is not clear if the 20 per cent subsidy cap will create a mad rush towards EVs for two-wheelers, three-wheelers and cars. China started with 40 per cent and has since lowered it to 25 per cent. Considering that a rapid scaling up is critical for the transition to succeed, being more charitable would not have hurt.

Hybrids relevant

While it is true that this government considers hybrids unviable and as an intermediate technology, they could well play an important role in the Indian context. Unlike other smaller nations, India has over 200 million vehicles on the road and this is expected to more than double by 2030. Shifting all vehicles to electric will take time and hybrids could help in the transition. Unfortunately FAME-2 does not give due importance to hybrids.

The policy also ignores another potential India-specific innovation — battery swap. Many experts have suggested this as a more economical option that can supplement charging stations. Some allocation to test this out would have been welcome at this stage.

Lack of clear supply-side incentives is another shortcoming. While the emphasis on localisation will push battery manufacturers to assemble in India, there is an urgent need to think bigger. Lithium cells have to be manufactured locally and, more importantly, India needs access to lithium itself.

This rare earth metal is not available in India and it is time for the government to start signing strategic deals to access it. Otherwise, as the population of EVs grows, India’s dependency will shift from West Asia (oil) to China (lithium).

Obviously, including these elements in the policy would have called for an allocation larger than ₹10,000 crore. Considering the size of the Indian economy and the potential benefits, increasing the allocation should not be difficult. The government should realise that this opportunity (to become self-sufficient in mobility, ensure energy security and reduce pollution) is rare and must, therefore, invest in it wholeheartedly.

If leading political parties can think up of populist schemes requiring a few lakh crores of allocation, doubling or tripling the outlay of FAME-2 is unlikely to significantly upset the budget math. Unlike populist policies, positive outcome appears more certain here.

Published on May 09, 2019
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