Report

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 of 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

Vehicle segment  Target number of vehicles to be supported per original outlay  Target number of vehicles to be supported per revised outlay  Number of vehicles supported  Vehicles incentivized as a percentage of revised targets 
Two-wheelers  1,000,000  1,550,225  1,170,241   
Three-wheelers  500,000  155,536  130,283   
Four-wheelers  55,000  30,461  16,631   
Bus  7,090  7,262  4,766   

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

Status of funds 
  Earmarked funds  Total funds utilized   Percentage of total funds utilized  
Details of funds  ₹11,500 crore  ₹7,940 crore  69% 
Details of vehicle segment-wise incentivization targets 
  Original target number of EVs to be supported under FAME II   Target number of EVs to be supported under FAME II per revised outlay  Percentage of target achieved under FAME II per revised targets  Segment-wise market EV uptake in FY 2023–2024 
Two-wheelers   10,00,000   1,550,225  75%  5% 
Three-wheelers   5,00,000   155,536  84% 

54% 

(Passenger 3W – 14% 

Goods 3W – 26% 

E-rickshaws – 100% 

E-carts – 100%) 

Passenger cars  55,000   30,461  55%  2% 
Buses  7,090   7,262  66%  4% 
All segments  15,62,090   1,743,484  76%  7% 

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.

Policy recommendations

If the government seeks to build on the achievements of FAME I and II, continued fiscal support aimed at overcoming these barriers could be part of an effective policy toolkit to help accelerate the EV adoption across a diverse range of consumers. The analysis above supports the following policy recommendations:

Table 7. Policy considerations for possible future incentives

 

Segment   Policy recommendations 
Two-wheelers 

To facilitate cost parity between E2Ws and conventional two-wheelers, consider offering purchase subsidies to electric two-wheelers until 2025–2027, beginning with a higher subsidy of ₹15,000/kWh of battery capacity, capped at 40% of the ex-showroom price, and gradually phase down the subsidy amount in line with EV cost reduction trends. 

 

Passenger three-wheelers 

Consider continuing purchase incentives of at least ₹10,000/kWh of battery capacity, capped at 20% of ex-showroom price, to enhance TCO and upfront cost competitiveness of electric passenger three-wheelers. 

To facilitate financing for electric passenger three-wheelers, consider offering lower interest rates, longer payback periods, and credit guarantees through notified agencies such as government banks and other financial institutions. 

Four-wheelers  Consider offering subsidies of at least ₹10,000/kWh, capped at 20% of ex-showroom price, for the purchase of private electric passenger cars. 
Buses  Consider prioritizing the electrification of private inter-city buses by facilitating access to favorable financing through interventions such as interest subvention, longer loan tenures, and credit guarantees. 
Trucks 

To accelerate BET uptake, consider offering a purchase subsidy of ₹20,000 per kWh of battery capacity, capped at 40% of ex-showroom price, for purchase of battery electric trucks.  

Consider kickstarting BET adoption through targeted purchase subsidy programs, initially focusing on trucks deployed in government operations and eventually extended to private truck fleet operators.   

For media and press inquiries, please contact Anandi Mishra, India Communications Manager, at communications@theicct.org.