Cost of FAME 3: Meet local sourcing norms or face penalty

Automakers applying in the third edition of the Centre’s flagship incentive scheme for electric vehicles will be liable to pay penalties in event of non-adherence with laid-down localisation norms, a senior official told ET.

Companies certifying vehicles for subsidies under Faster Adoption and Manufacturing of Electric Vehicles (FAME 3) – scheduled to be announced in the upcoming budget – will have to undergo a techno-commercial audit twice a year to ascertain they are meeting localisation guidelines.

In the event of irregularities, manufacturers would have to return claimed subsidies with interest at a rate 3% higher than MCLR (marginal cost of funds-based lending rate) in penalties, the official said.

This will be the first time EV makers are penalised for not meeting declared localisation criteria under the scheme since the government launched FAME in 2015.

Earlier iterations of the scheme focused on phased manufacturing programme (PMP) to gradually increase localised content in domestic electric vehicles. But the new EV subsidy programme being readied is for companies that already have local manufacturing or sourcing in place. The decision to impose penalties is also aimed at preventing recurrence of controversies that riddled implementation of the ₹10,000-crore FAME 2, in which more than half a dozen companies including Hero Electric and Okinawa Autotech were found to be wrongfully claiming subsidies without meeting localisation guidelines.


Committee being set up
“We are putting in place a committee with representatives from testing agencies, which will audit every six months whether companies are meeting the localisation norms in vehicles certified under FAME,” the official cited above said. “In the event of non-compliance, they will have to refund claimed subsidies with interest at a higher rate than MCLR.”

FAME 3, with an outlay of about ₹10,000 crore, is lined up for launch within the first 100 days of the new government in office. Under the present proposal forwarded by the Ministry of Heavy Industries (MHI), the scheme is likely to support sales of electric two-wheelers, electric three-wheelers, cars, and electric buses.

FAME 2 had offered a 15% subsidy on the sale price of electric scooters sold in the country.

Meanwhile, legal proceedings are underway against Hero Electric, Okinawa and Benling that have not refunded subsidies to the tune of ₹300 crore allegedly claimed wrongfully from the MHI.

Last fiscal, the ministry had sent recovery notices totalling ₹469 crore to around half a dozen companies found to have violated localisation guidelines while claiming subsidies on EVs sold between 2020 and 2023. While Revolt Intellicorp, Ampere and AMO Mobility refunded the incentive amount claimed by them, others have challenged the notices in court.

“The objective of the scheme (FAME) is to support and accelerate consumer adoption of electric vehicles, and simultaneously create a local ecosystem so as to bring their costs down over time,” the official said. “It goes against the very purpose of the scheme if companies do not source locally. It will hinder the development of a vendor base in the country.”


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