The Union Cabinet approved a new subsidy scheme aimed at reducing the cost of electric vehicles (EVs) in India, on September 11. According to H D Kumaraswamy, the Union Minister for Heavy Industries, the scheme will bring down the rates of electric two-wheelers by up to Rs 10,000 per unit.

What is it in the scheme?

Under the new scheme, named the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-Drive), the electric two-wheelers will receive a subsidy of Rs 5,000 per kWh in the first year, capped at Rs 10,000 per unit. In the second year, the subsidy will be reduced to Rs 2,500 per kWh, also capped at Rs 10,000 per unit. For electric three-wheelers, the subsidy will be Rs 50,000 per kWh in the first year and Rs 25,000 per kWh in the second year.

The scheme does not yet address subsidies for electric buses, Mr. Kumaraswamy noted. PM E-Drive, with a total budget of Rs 10,900 crore over two years, aims to support the adoption of 24.79 lakh electric two-wheelers, 3.16 lakh electric three-wheelers, and 14,028 electric buses. Electric cars and hybrid vehicles are excluded from this scheme.

The scheme targets achieving a 10% penetration of electric vehicles in the two-wheeler market and 15% in the three-wheeler market by the end of the scheme. Mr. Kumaraswamy explained that electric cars already benefit from a lower GST rate of 5% and incentives under the Auto Production Linked Incentive (PLI) scheme.

The budget allocated

Approximately 40% of the scheme’s budget, or Rs 4,391 crore, is allocated for electric buses. Rs 1,772 crore is set aside for electric two-wheelers, while Rs 907 crore is designated for electric three-wheelers. Additionally, Rs 500 crore will be used for hybrid ambulances.

Moreover, the home-grown auto majors like Tata Motors and M&M have praised the scheme highlighting its potential to accelerate India’s sustainable transportation. "With continued focused support on 2Ws, 3Ws, e-buses and the thoughtful addition of e-ambulances, the scheme will drive higher EV penetration in the country. With PM e-drive, we foresee India becoming the first country to achieve 100 per cent electrification in this segment by 2030,” said Mahindra Group CEO Anish Shah said in a statement.

To facilitate the disbursement of subsidies, the Union Ministry of Heavy Industries will implement e-vouchers for EV buyers. The scheme’s portal will generate Aadhaar-authenticated e-vouchers at the time of purchase, preventing leakage of funds and ensuring direct benefits to the buyer.

The PM E-Drive scheme currently emphasizes on improving charging infrastructure, a critical factor in promoting large-scale EV adoption. The scheme proposes the installation of 22,100 fast chargers for electric cars, 1,800 for electric buses, and 48,400 for electric two- and three-wheelers, with an allocation of Rs 2,000 crore for this purpose.

How it differs from the previous scheme?

This new initiative follows the conclusion of the second phase of the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME-II) scheme, which ended on 31st March 2024. Over its five-year duration, FAME-II supported the deployment of 13,21,800 EVs with a budget of Rs 11,500 crore and installed only 2,700 charging points. The FAME-II scheme has been succeeded by the Rs 500-crore Electric Mobility Promotion Scheme 2024, which will run until 30th September 2024.