The Union Minister for Road Transport and Highways, Nitin Gadkari, has said subsidies for electric vehicle manufacturers in the country can be discarded, with demand for electric and CNG vehicles on overdrive. Inaugurating a Bloomberg New Energy Finance Summit, Gadkari outlined that swelling consumer interest in EVs, along with reducing production costs, has made government subsidies redundant. The move is another indication that it is a policy shift, with the country speeding up its transition towards cleaner and sustainable transportation solutions.
Market Growth of Electric Vehicles
Subsidies were necessary to begin with to offset the high cost of electric vehicles, but the market has moved on,” Gadkari said. As demand for electric vehicles grew, this helped reduce production cost and thus no subsidy was required anymore. “Consumers are now choosing electric and CNG vehicles on their own and no substantial government subsidy is required any more,” Gadkari said.
While electric vehicles pay an in-country 5% GST, internal combustion-powered vehicles – including hybrids – pay 28% GST. That is enough incentive for the electric vehicle market to continue its growth momentum without any other kind of financial incentives, argued Gadkari.
Transition to Fossil-Fuel-Free
He further quoted the minister as saying that he was hoping such switches from fossil fuel to other fuels, like electricity and CNG, would happen gradually over a period of time. He admitted that was indeed an economic and energy challenge facing the country of this vast size and fast-growing energy needs.
However, Gadkari denied imposing higher taxes on the vehicles that run on petrol and diesel on the grounds that striking a balance between the promotion of clean energy alternatives and the economic realities of the Indian transport sector is necessary. Despite the rising impetus for EVs, traditional vehicles still dominate a large chunk of the market.
Cost of Electric Vehicles and Battery Technology
One such catalyst for electric vehicle adoption is that lithium-ion batteries are getting cheaper. Gadkari was confident in his prediction that, in two years, the prices of electric vehicles would be about the same as diesel and petrol-fueled vehicles. “At the beginning, electric cars were costlier, and so we had to give incentives to manufacturers. Now, with battery prices falling, the cost of EVs is likely to reach parity with traditional ones,” he said.
This is seen as a measure that would accelerate further growth in the electric vehicle sector since parity in cost with conventional vehicles would make the electric options even more attractive to a wider group of consumers.
FAME Scheme and Future Prospects
With discussions around electric vehicle subsidies in full swing, there were questions over the fate of the government’s FAME scheme. To a question on whether the FAME scheme would be extended, Gadkari said that the matter relates to the Ministry of Heavy Industries and not his department.
The FAME scheme, which was first introduced to promote the adoption of electric vehicles, is currently in its second phase. FAME 2 was launched in 2019 with an outlay of ₹10,000 crore for three years. Later, the scheme was extended up to March 2024 with an additional allocation of ₹1,500 crore to give a further fillip to the sector. The main objective of FAME 2 was to incentivize the demand for one million electric two-wheelers, 500,000 electric three-wheelers, 55,000 electric passenger cars, and 7,000 electric buses.
In the wake of increasing demands for something more decisive and successful, the Indian government is likely to declare FAME 3. Union Heavy Industries Minister H D Kumaraswamy said that FAME 3 is likely to get finalized within a few months. The scheme will replace the Electric Mobility Promotion Scheme – EMPS 2024, due to expire in September.
Shortfalls of FAME 1 and FAME 2
Despite the progress made in FAME 1 and FAME 2, a set of challenges still remains. Many have hindered the full success of the scheme, from inadequate adoptions in certain segments to shortages in charging infrastructure. With a view to address this issue, an inter-ministerial group is deliberating inputs on FAME 3 by correcting the loopholes of the previous two phases. Even the Prime Minister’s Office has given suggestions on how to refine the scheme and make it more effective, said Minister Kumaraswamy.
On FAME 3, many recommendations are coming because whatever the lacunae were there in FAME 1 and FAME 2, we are trying to address them,” Kumaraswamy added. He also said FAME 3 will focus on streamlining the process so that electric vehicles continue to see an upward spiral, and necessary infrastructure is in place for the growing numbers of EVs coming on the road.
Looking Ahead: The Future of Electric Mobility in India
Government policies, coupled with increasing consumer demand, are gradually shaping the future of electric mobility as India transitions into greener transport. The decrease in production costs and advancement of technology for lithium-ion batteries is an opportunity for the country to experience a major shift away from fossil fuel-powered vehicles.
This phase-out of electric vehicle subsidies indicates growing confidence that the market can sustain itself. India is slowly but surely transitioning toward a more sustainable and greener transportation ecosystem, with consumers showing a greater affinity for electric and CNG vehicles. However, this transition will take some time, and government policies like FAME 3 will keep playing the role of supporting this transition mechanism effectively.
With the sector continuing to evolve, much consolidation will need to come through collaboration between various government agencies and industry stakeholders if outstanding challenges, such as in infrastructure development and enhancement of technology, are to be met.
Source: Ministry of Road Transport and Highways