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The government is reportedly reworking the FAME-II scheme to ensure companies use domestic components

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  • The government is reportedly in the process of reworking the FAME-II scheme.
  • This is aimed at closing loopholes that companies use to get subsidies without adding any value in India.
  • There are allegations that companies import most components from China.

The Indian government is reportedly working to update its policy for faster adoption and production of hybrid and electric vehicles (FAME-II) to close the loopholes that companies are allegedly using.

According to an
report by Economic Times, the incentive scheme is being revamped to close loopholes that allegedly allowed companies to get subsidies without any added value in India.

What is the FAME-II scheme?

For those who didn’t know, the FAME-II scheme was announced in 2019 as a three-year scheme and was extended for another two years until 2024. It has a financial outlay of ₹10,000 crore. The aim of the scheme is to stimulate the purchase of electric vehicles such as cars, scooters and buses by means of a subsidy.

To qualify for the grant under the FAME-II scheme, a minimum of 50% of the components must be sourced from the country to ensure domestic value addition.

The government is reportedly changing the way the FAME-II subsidy can be claimed after it was reported that EV manufacturers took advantage of the subsidy without any added value in India as most of the components were imported from China. According to the report, the Ministry of Heavy Industry received complaints about the lack of domestic value addition.

Dasoju Srravan, a spokesman for the Indian National Congress, said
so-called that Hero Electric is “transferring” subsidies while importing batteries and other components from China.

At present, the EV manufacturers calculate and inform the Automotive Research Association of India (ARAI) about the components and domestic value addition before launching the vehicle, and the agency certifies it. This reportedly allowed companies to apply for grants even without meeting the component localization requirement.

Now, the EV makers will reportedly have to calculate the domestic value addition and incorporate it into the company’s enterprise resource planning (ERP) system.

“DVA (Domestic Value Addition) data should be calculated and stored in the enterprise resource planning (ERP) system of OEMs (Original Equipment Manufacturers) at the granularity level,” reads the message sent to automakers.

The data is required for each vehicle sold by the companies based on each chassis number and must be uploaded to the government’s FAME-II portal.

The tentative date for the implementation of the new requirements is September 1. However, it is not clear whether companies can implement the new system before the deadline.

It is currently unknown whether this development will lead to changes in vehicle prices. https://londonbusinessblog.com/ India has reached out to companies such as Ather, Ola Electric and Hero Electric, among others. We will update the story as soon as we receive a response.

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