Editorial: Blow to EV sector
Centre’s decision to reduce the subsidies for electric two-wheeler manufacturers is a retrograde step
At a time when there is a need to promote the use of clean fuel, the Centre’s recent decision to reduce the subsidies for electric two-wheeler manufacturers must be seen as a retrograde step that is bound to impede the adoption of electric mobility. The government has reduced the subsidy amount for electric two-wheelers, under the Faster Adoption of Manufacturing of Electric Vehicles (FAME) scheme, from 40% to 15% of the ex-factory price, effective from June 1, leaving the entire industry in a precarious position. There is a need to take a relook at the decision because it may significantly dent the demand for electric two-wheelers. In 2022-23, their sales stood at 7.26 lakh units, as against 2.5 lakh units in the previous year. Since the two-wheeler market is price-sensitive, the reduction in subsidy would see a significant dip in sales in the days ahead. A gradual transition with sustained subsidies would be an ideal path to ensure market growth and reach the international benchmark of 20% EV market share. However, the sudden massive cuts in subsidies will likely lead to a major decline in sales, impacting the entire industry. In fact, the decision goes against the milestones set by the government to steer two-wheeler vehicle manufacturers away from gasoline-based engines and towards more sustainable options. It also poses a significant challenge to achieving lower emissions targets through increased EV penetration. Electric vehicles now account for nearly 5% of overall two-wheeler sales. The slash in subsidies threatens to reverse the progress made so far and undermine the affordability of electric two-wheelers.
As per earlier projections, the Indian electric two-wheeler market size stood at $890 million in 2022 and is expected to reach $6 billion by 2030 growing at a rate of 27-30%. But these figures may change post-reduction in subsidies. It is particularly concerning for new entrants who were banking on these subsidies to compete in the market. Moreover, by increasing the cost of electric two-wheelers by 30% to 40%, the reduction in subsidies places a significant burden on consumers, making it more challenging to convince them to transition from internal combustion engine (ICE) vehicles to electric ones. India must emulate the models in China, the United States and some European nations which provide far greater subsidies to promote the adoption of EVs. To ensure the EV industry’s sustained growth, the government must extend the FAME subsidies until EV penetration reaches a significant level of 10%. In addition, reducing import dependency and building a robust, localised EV ecosystem should be a priority. India’s ambitious plans for the EV industry demonstrate the country’s potential to become a global leader in clean and sustainable transportation. However, this vision can only be realised by maintaining a favourable policy environment, incentivising domestic manufacturing, and providing long-term support to the industry.
