Explained: EV Subsidies, Incentives Offered by Center and States in India

Evolving in the new age of electric mobility, various subsidies and incentives offered by the Center and state governments form the backbone of the EV market in India.

As per a report, the EV market in India will be USD 206 billion by 2030, if India maintains a steady progress to meet its ambitious 2030 target. This would require a cumulative investment of over USD 180 billion in electric vehicle production and charging infrastructure. Another report by India Energy Storage Alliance (IESA) projects that the Indian EV market will grow at a CAGR of 36 percent till 2026. The EV battery market is also projected to grow at a CAGR of 30 percent during the same period.

Like any other entity, the growth of EV sector needs the government push both at central as well as state levels. The main area of target remains the high cost of EV production at this nascent stage. Before any technological revolutions and their adoptions, an initial support mechanism is imminent for the growth of EV. Thus, subsidies and incentives by center and states have been put into place so that buyers don’t bear the entire cost of the product.

Central Government Subsidy

Faster Adoption and Manufacturing of Hybrid and EV (FAME II) scheme has been launched by the central government in April 2019. To avail benefits under the scheme, any two-wheeler has to go through certain criteria. The two-wheeler must have a mileage of 80km on a single charge. Further, needs to have a speed of at least 40kmph. In addition to this, the two-wheelers also need to have a certain degree of localization.

On passing the criteria, the government offers a subsidy of Rs 15,000 per kWh of battery. For example, Ather 450X is eligible for a FAME II subsidy of Rs 43,500 per scooter. It is worth noting that there is also a subsidy cap. The subsidy is only eligible for 40 percent of the vehicle’s total cost.

The subsidy is directly passed on to the customer, while EV manufacturers account for this subsidy when quoting the price at the time of purchase. In backdrop of recent slowdown in the economy due to several factors, more prominently Covid19, the government has extended scheme by two years. Now the FAME II subsidy is valid until March 31, 2024.

State Government Subsidies

State government also joined hands with center’s efforts for promotion of electric mobility in their states. These largely vary according to the state. Some offer fixed subsidies while some take into account battery capacity, performance and other such aspects before fixing on a price.

Gujarat and Maharashtra, for instance, have been instrumental in such efforts. Gujarat has a Rs 10,000 per kWh subsidy scheme. Here, subsidy on a particular two-wheeler cannot exceed 20 percent of the vehicle value.

Similarly, in Maharashtra, eligible two-wheelers get a flat Rs 10,000 subsidy. An early-bird scheme that added an extra Rs 15,000, also got extended in 2022. Earlier it was valid until December 31, 2021.

Rajasthan and Odisha are also in the race. Rajasthan offers a subsidy of Rs 5,000 for two-wheelers with a 2-kWh battery. In addition, there is subsidy up to Rs 10,000 for a battery bigger than 5 kWh. Odisha, on the other hand, offers a flat subsidy of Rs 5,000.

There are complete Road tax waivers for electric vehicles in most states. There are exceptions such as Gujarat and Kerala, where buyers have to pay 50 percent of the total road tax amount.

Challenges Ahead

India’s EV space is at a nascent stage. However, looking at it differently – India offers the world’s largest untapped market, especially in the two-wheeler segment. A 100 percent FDI is allowed in this sector under the automatic route. In spite of subsidies and incentives, there are various challenges that need solving if India wants to blast the roof with EV onboard. These challenges are low penetration, high capital costs, Covid19 market disruptions, uncertain policy environment, and the lack of supporting infrastructure. What else? India does not have any known reserves of lithium and cobalt. This makes the country dependent on imports of lithium-ion batteries from Japan and China.