Extend FAME II, grants for Battery R&D, swapping & recycling: SMEV on Union Budget

The Society of Manufacturers of Electric Vehicle (SMEV) representing Indian manufacturers of electric vehicles has come up with a host of recommendations for the upcoming union budget 2023-24. Voicing its concerns of critical aspects on India's EV-related policy and incentive schemes, the association has suggested corrective measures to build a strong EV ecosystem in the country - both in the demand and supply side of the spectrum. 

"We believe that no policy can be cast in stone and must be dynamic to factor the on ground conditions during its implementation. With government support, the Indian EV industry can become a global hub", said SMEV's statement. 

Although the union government has shown its commitment to promoting and prioritizing electric mobility through various initiatives like FAME scheme and others, aspects like R&D for localization, supply-side support, charging infrastructure, and consumer awareness programs could not take off due to the nascent stage of the industry, the non-availability of resources to attract investment, and COVID, it added.

Further, SMEV has warned that the domestic EV industry can go through a phase of an unstable supply chain if a recession hits the major markets and the extremely rigid stand taken on some of the policies like FAME on premature localization. 

The association hopes that the upcoming  budget will help the EV industry move forward on its way towards faster adoption of EVs. 

"Calibrated steps will be needed to maintain the ongoing positive economic growth curve. We look forward to enhanced support for battery manufacturing in India. Investments in EV infrastructure must be at the optimal level of the GDP to achieve state-of-the-art EV infrastructure. Further reductions in import duties on raw materials will be a huge relief for the industry, and we hope that the government will continue to support localization and the transition to green mobility", according to SMEV's statement. 

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Highlights of SMEV's recommendations:

• GST Uniformity: While 5 percent GST is levied for the vehicle, there is no clarity on spare parts, and the industry end up paying 28 percent (except for Batteries). There is a need for levying a uniform 5 percent GST for all EV spare parts.
• Basic Customs Duty on cells: Since the manufacturing of lithium-ion cells within the country is still in its nascency, the percentage of customs duty for cells used for EV production should be reviewed. Reduction of customs duty to 0 percent until cells start getting manufactured in India suggested, also because of a major increase in cost on account of AI 156.

• The validity of FAME II is set to expire on March 31, 2024. FAME's validity needs to be extended since the  EV penetration the subsidy was supposed to catalyze is yet to be realized.
• The new FAME II scheme should be linked to e-mobility conversion rather than being time-based. According to market trends, E Mobility, particularly E2W, has the potential to continue growing once it reaches 20 percent of the total 2W market. The subsidy can be tapered thereafter.
• The FAME II scheme should have provisions to directly transfer the subsidy to the customers.

• According to global trends, India should be ready to transition to E-mobility in trucks and heavy commercial vehicles in 3-4 years. 
• Increase the scope of FAME to include commercial vehicles on a project mode basis. 
• Expand the FAME subsidy to electric tractors to help India reduce fuel imports and GHG emissions.
• Center to allocate special funds and advise the Agriculture Department to announce exclusive provisions for a subsidy to e-Tractor buyers (for use both on the farm and commercially) in the SMAM guidelines and allocate state-wise yearly targets for electric tractors.

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• Lack of R&D on battery storage for EVs, hence, creating grants or incentives to stimulate innovation in this sector can help. 

Battery Swapping:

• Implementation of Battery Swapping Policy, which was committed in last year's budget. NITI Aayog has consulted stakeholders, but the final policy is waited for accelerating this segment.
• Need for GST Rationalization: A reduction in GST on swap batteries will lower the cost of EV ownership among fleet operators, last mile delivery companies, and the last mile connectivity sector.
• To accelerate the adoption of e-mobility, there should be a focus on the creation of EV charging and swapping infrastructure. This objective can be achieved through FAME incentives for charging and swapping infrastructure.
• To make a consortium of four large oil and gas PSUs – IOCL, BPCL, MNGL & IGL and create a special corpus to install battery swapping stations at all the gas stations.
• FAME II subsidy for extra or float batteries for battery swapping: At present, the FAME II subsidy is given to vehicle OEMs; however, for float batteries for a battery swapping network, there is no subsidy on the battery; as per the draft EV policy, it is proposed that the FAME II subsidy will be provided to the extra (float) batteries in the network as well.

• Policy towards Lithium-Ion battery recycling may be provided as we are in 5th year of operations and may need these guidelines immediately.
• Electronic component buying and recycling agencies may be recruited by GoI. The tender may be called upon for Agency recruitment.
• For research & development expenses related to battery recycling, a 200 percent tax rebate, as before, may be considered.

• At present, the customers are charged 18 percent GST on every transaction that they undertake at an EV Charging Station and every battery swapped at a Battery Swapping Station.
• Corporate customers can take the input tax credit on the GST paid during this transaction; however, retail customers do not have such an option and they absorb the tax as a cost.

• Help reduce the interest rates charged to EV customers. Extend the guarantee being offered by NITI Aayog and the World Bank through SIDBI even for commercial four/ six wheelers.
• Help reduce the interest rate for loans taken by pure EV OEMs for setting up EV manufacturing facilities.
• For EV penetration, a critical requirement is to enable a wide network of charging infrastructure. The government is required to provide a CAPEX subsidy of 50% for setting up charging infrastructure across the country.
• EV financing is to be included as part of priority sector lending to ensure more pools of capital are unlocked.

• Non-availability of skilled manpower for R&D, production, or repair. Allocate incentives for building academic or skill training courses on EVs.

• Pure EV OEMs are not incentivized. Allow pure EV companies to trade credits acquired through production with ICE OEMs. It will de-incentivize ICE production and offer a level playing field for new-age companies.

• PLI scheme drafted is not designed for startups and MSMEs to benefit from it. Include them within the PLI ambit. With the PLI Scheme favoring only established big corporates and multinationals, startups and MSMEs tend to lose because they are already struggling for capital.