India Shifts Toward Electric Vehicles and Improved Mobility

Co-authored with Charu Lata

With poor air quality and congested streets, India is moving toward electric vehicles and improved mobility. This month, the Indian government and key stakeholders are discussing ambitious targets for auto-rickshaws and two-wheelers. Earlier this year, the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME-II) program was launched and aims to expand shared mobility, electric mobility and electric vehicles (EV). India, like many counties, is shifting toward EVs and increased mobility to reduce air pollution, carbon dioxide emissions, and fuel imports.

In a recent development, India may require all electric auto-rickshaws by 2023 and all electric motorcycles by 2025, as proposed by NITI Aayog. Leading companies, such as Mahindra, Hyundai and Hero Electric, are signaling support for the new targets with announcing plans for vehicles tailored to the price-point of the Indian market or ramping up domestic manufacturing. This is definitely an area to watch since initial announcements of all electric vehicles by 2030 was made a few years ago, yet was never formally adopted.

FAME II Overview

After much anticipation, the Department of Heavy Industries (DHI) under the Ministry of Heavy Industries and Public Enterprises launched the second phase of the FAME program in March. The aim of the program is to ramp up the manufacturing and adoption of EVs as well as the charging infrastructure ecosystem in India. FAME II complements existing pollution reduction strategies, including those implemented under the National Clean Air Program.

FAME II increases the financial investment for EVs and mobility to ₹10,000 crore ($1.4 billion)—more than a 10-fold increase from ₹895 crores ($129 million) under the past FAME I scheme. Also, 86% of the funds are set aside to be distributed as an upfront incentive to reduce the vehicle cost.

Three categories of vehicles are eligible for FAME II incentives: public transportation fleets; registered commercial vehicles for buses, four-wheelers and three-wheelers; and privately-owned two-wheelers. Interestingly, FAME II excludes policies for privately-owned four-wheelers (cars). FAME II also includes a localization requirement to source 50% of the vehicle parts in India. The requirement may delay the introduction of new vehicles in the Indian market as vehicle manufacturers currently import most of the vehicle parts. 

Three main areas of implementation under FAME II are: demand incentives to reduce the upfront, initial cost of EVs; establishing charging stations and infrastructure; and consumer awareness and promotion of EVs and shared mobility through IEC (Information, Education & Communication) activities.

• FAME II Duration: 3 years (April 1, 2019 onwards)
• Fund Allocation: ₹10,000 crores ($1.4 billion)
• Nodal Department: Department of Heavy Industry – responsible for planning, implementation and review of the scheme
• Applicability: public transportation fleets; registered commercial vehicles for buses, four wheelers and three wheelers; privately-owned two-wheelers
• Localization: requires 50% of vehicle parts made in India

Demand Incentives Under FAME II

The demand incentives under FAME II include vehicles categories, caps on demand incentives, battery size and a maximum ex-factory price for the incentive, as outlined in the table below.

Vehicle Categories Included for Demand incentives under FAME II

* EV: Electric Vehicle, PHEV: Plug in Hybrid, SHEV: Strong Hybrid
** Demand incentive for buses will be based on the operational expenditure model adopted by the State/City transport corporation
Source: NRDC

For four-wheelers, FAME II incentives are available only for cab aggregators, such as Uber, Ola and others, who operate commercial fleets. The reduced focus on private vehicles leans electrification toward the two and three-wheeler market and commercial fleets. Although manufacturers would prefer to include private electric cars, the focus on two and three-wheelers and shared mobility given the share of these vehicles in the Indian market.  

The incentives under the FAME II scheme are applicable only to vehicles using advanced batteries (excluding lead acid batteries), with the amount scaled to the size of battery used. This proves to be both advantageous and disadvantageous for EV market growth. On one hand, such an incentive would encourage the manufacturer to provide higher capacity batteries to increase the range of the vehicle. This would bring us closer to a one-to-one replacement with a petrol vehicle. On the other hand, smaller battery electric vehicles (that may be more efficient) will have a lower incentive.

Charging Infrastructure

Adequate public charging infrastructure is a key objective of the FAME II program. Proposals consistent with the “Charging Infrastructure for Electric Vehicles – Guidelines and Standards” can apply for funding up to 100% of project costs. Apart from providing regular (slow and fast) charging stations, projects can also include more advanced technologies, such as pantograph charging and flash charging, that are used to charge electric buses.

FAME II also proposes to provide fleet buyers with one slow charger for every electric bus purchased as well as one fast charger for every 10 electric buses purchased. In addition, the program encourages integration of renewable energy sources with charging infrastructure, the smart grid, and use of Information and Communication Technology.

Recent Developments

As part of the union budget, the central government reduced the Goods and Services Tax (GST) on EVs from 12% to 5%. The central government is also providing an income tax deduction of ₹1.5 lakh ($2,200) on the interest paid on the loans for EV purchases.

Many states are now in the process of updating their draft state EV policies to include the provisions and incentives under FAME II. The Department of Heavy Industries (DHI) has invited expressions of interest (EoI) from state transport departments for the deployment of 5,000 electric buses. Gujarat, Uttar Pradesh, Rajasthan and Kerala are a few of the states that have already submitted proposals to the government to purchase electric buses under FAME-II program.

In the ever-changing landscape of e-mobility, NRDC and our partners are working to improve air quality by expanding electric vehicles and charging infrastructure in India and elsewhere. We look forward to working with partners in moving the new policies forward to grow the economy, protect human health, and safeguard planet. 

Charu Lata leads NRDC’s electric vehicle and mobility work in India and is a consultant based in New Delhi.

This photo of traffic in this blog has been updated to a IIPHG-NRDC photo from the photo originally used in the AFP story.