Electric vehicle demand incentives in India: The FAME II scheme and considerations for a potential next phase

Executive summary

India’s transport sector is a major contributor to the country’s energy-related carbon dioxide (CO₂) emissions and is the fastest-growing source of carbon emissions in the country. For India to achieve its commitment toward limiting global warming to below 2 °C, the phaseout of new internal combustion engine (ICE) vehicle sales by 2045 is imperative.

Electric vehicles (EVs) are the single most important technology for the decarbonization of the transport sector. India has been actively promoting the uptake of EVs, including through the flagship Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme, which aims to accelerate the uptake of EVs, primarily through the provision of fiscal incentives to EV buyers. The scheme’s second phase, FAME II, was launched in April 2019 with an initial budget outlay of ₹10,000 crore, later increased to ₹11,500 crore; it concluded in March 2024. In this study, we offer insights into the FAME II scheme. Further, we examine the impact of FAME II purchase subsidies on the cost dynamics of EVs and explore the opportunity of extending such subsidies to segments that are yet to be covered under the scheme. Based on this analysis, we develop policy recommendations for a possible third phase of the program.

As presented in Figure ES1, 69% of the funds earmarked under FAME II were utilized over the duration of the program.

Figure ES1. Status of FAME II fund utilization in fiscal years 2019–2020 to 2023–2024

Under the scheme’s segment-specific targets regarding the number of vehicles to be supported, which were revised in February 2024, electric two-wheelers had a target achievement of 75% (see Table ES1). Meanwhile, the three-wheeler segment achieved 84% of its target, the passenger car segment achieved 55%, and the bus segment achieved 66%.

Table ES1. Target number of vehicles to be incentivized under the FAME II scheme and target achievement following February 2024 revision

Source: Ministry of Heavy Industries, Government of India (2024c)

Key findings

This report examined the FAME II EV promotion scheme in India, assessing the extent to which segment-specific incentivization targets were achieved and the impact of purchase subsidies offered under the program. Table 6 presents key observations regarding the status of fund utilization and the achievement of segment EV incentivization targets under the scheme. The uptake of EVs in the Indian market in FY 2023–2024 by segment is presented in the rightmost column. As indicated in the table, EVs accounted for just 7% of vehicle sales in India in FY 2023–2024. High upfront cost and a lack of access to financing continue to pose major challenges for the uptake of EVs in the country.

Table 6. Fund utilization and segment target achievement under FAME II

Note: For the two-wheeler segment, a greater number of EVs were incentivized than was targeted under the scheme. 

FAME II prioritized the electrification of the two-wheeler and three-wheeler segments, which together accounted for 98% of vehicles targeted for incentives under the scheme. These two segments dominate the market for on-road vehicles in India . As policymakers weigh a possible third phase of FAME, they may consider enhancing efforts to incentivize EV uptake in other vehicle segments, including the private passenger car segment, private bus segment, and truck segment, which are collectively responsible for an overwhelming majority of well-to-wheel CO₂ emissions in the country. Promoting the uptake of EVs in these segments could also help spur domestic demand for EV batteries in a short span of time, owing to their relatively larger battery size, and potentially facilitate a rapid reduction in EV battery prices.