As India made progress creating new clean transport, there is a significant change with the conclusion of the FAME-II scheme. With the closure of EV incentives, a lot of debate has opened up on demand, prices, manufacturing, infrastructure, and policy making. FAME-II (Faster Adoption and Manufacturing of Electric Vehicles in India – Phase II) completed on March 31, 2024 and made important funding available to buyers of electric vehicles (EVs) and manufacturers. Stakeholders are now considering where to go from here after that funding.
FAME-II was initiated in 2019 and was a ₹10,000+ crore program with the aim of accelerating the adoption of EVs in India. It subsidized 1.6 million EVs (two-wheelers, three-wheelers, electric cars, and buses). The abrupt EV incentive has expired raises some very important questions: How will demand be affected? Will consumers continue to purchase electric vehicles? Can producers survive without these government subsidies? And most importantly, will India meet the very ambitious targets it has for electrifying and decarbonizing?
Impact on EV Pricing and Demand
The most immediate impact of the EV incentive phase-out is visible in vehicle pricing. As per FAME-II, two-wheelers got subsidies of up to ₹10,000 for kWh, with a cap of 15% of ex-factory price; 3-wheelers and electric buses had substantial support per unit. The subsidy elimination has very visibly raised EV costs, especially for the cost-conscious two- and three-wheeler consumers.
We have already seen some signs of slow demand as prices go up. In June 2024 several EV makers reported slower retail sales. There are scenes from other markets that may develop; pullback in electric vehicle adoption afterwards. The market was off when New Energy Vehicle (NEV) subsidies ended in China around early 2023 leading to a significant pullback in EV sales there. This may happen in India too with adoption falling, especially for the rubric of cost-sensitive consumer who primarily entered the EV market for FAME-II stimulus benefits. The EV incentive phase-out may pose a risk of adjusting backward some of the progress made within the past five years.
Segment-Wise Effects on the Market
Different EV segments are likely to be affected differently by the EV incentive phase-out. The two-wheeler segment, which saw a massive uptick in sales due to affordability, is now witnessing reduced showroom traffic. Smaller brands with limited scale are especially vulnerable, as they relied heavily on government subsidies to remain competitive.
Three-wheelers, often used in last-mile delivery and public transportation, are also expected to face headwinds. However, since many three-wheelers operate commercially and have shorter payback periods, fleet operators may still find them financially viable, even without incentives. On the other hand, electric cars and electric buses, which were never major beneficiaries of the scheme, are likely to remain relatively unaffected in the short term. Larger manufacturers like Tata Motors or Ashok Leyland may weather the EV incentive phase-out better due to economies of scale and established consumer bases.
Financial Strain on Manufacturers
The FAME-II scheme not only helped consumers but also supported original equipment manufacturers (OEMs) through working capital liquidity. Many EV makers structured their pricing and operations around predictable government reimbursements. With the EV incentive phase-out, manufacturers—particularly new entrants—face financial pressure. They must either absorb the loss, raise prices, or scale back operations.
Smaller OEMs in the electric two-wheeler space may face the toughest road ahead. Without subsidies, their ability to compete with larger, better-funded rivals becomes severely limited. The EV incentive phase-out could also slow down investments in electric vehicle research and development, as OEMs become cautious in uncertain market conditions.
Infrastructure Development Risks
Beyond vehicle sales, the EV incentive phase-out also affects the development of public charging infrastructure. Under FAME-II, the government sanctioned over 7,000 public charging stations through partnerships with oil marketing companies and state agencies. With the end of financial backing, there is now concern that the pace of charging infrastructure development will slow, especially in semi-urban and rural areas.
Private companies, which had started to invest in fast-charging networks and battery-swapping stations, may now reevaluate their growth plans. The return on investment becomes less certain in a climate where overall EV adoption is slowing. The EV incentive phase-out risks creating an infrastructure gap, which could further discourage new buyers, triggering a feedback loop that weakens confidence across the ecosystem.
Government’s Mitigation Measures
Acknowledging the critical nature of this transition, the Indian government introduced a stop-gap initiative called the PM e-Bus Sewa scheme and the Electric Mobility Promotion Scheme (EMPS) in April 2024. Together, these programs aim to bridge the gap created by the EV incentive phase-out, offering continued subsidies—though at reduced levels—for select vehicle categories like electric two-wheelers and three-wheelers.
Under EMPS, a total allocation of ₹500 crore was made to support 3.3 lakh vehicles until July 2024. While these temporary schemes offer some relief, they are not long-term substitutes for a comprehensive national incentive plan. Industry stakeholders have expressed hope that the upcoming Union Budget in July 2025 will include a more robust Phase-III of the FAME program. If rolled out, FAME-III could stabilize the market and restore confidence that has been shaken by the EV incentive phase-out.
State-Level Incentives and Localization Push
Some Indian states have their own EV policies and continue to offer purchase subsidies, road tax waivers, and registration fee exemptions. Maharashtra, Delhi, and Tamil Nadu are among the leaders in this regard. These local incentives may partially shield the market from the full effects of the EV incentive phase-out, but only in select regions.
Another long-term concern is the potential slowdown in EV localization. Under FAME-II, subsidies were linked to domestic value addition. Many manufacturers ramped up local sourcing to qualify for the scheme. Without similar conditions or incentives in place post-EV incentive phase-out, the momentum to build indigenous supply chains could decline. This would hurt India’s efforts to become a global EV manufacturing hub.
Scenario-Based Outlook
If no major incentive plan follows FAME-II, the EV incentive phase-out could result in a prolonged slowdown in adoption. Price increases would push EVs out of reach for many, and OEMs could delay or reduce their EV product lines. Alternatively, if interim schemes like PM e-Bus Sewa and EMPS are scaled up or followed by FAME-III, India might see a smoother transition, allowing the market to mature gradually.
Another possibility is that the market begins to self-correct through innovation and economies of scale. Battery costs are falling globally, and with the right supply chain strategy, India could achieve cost parity between EVs and internal combustion engine (ICE) vehicles without the need for large subsidies. However, this optimistic scenario depends heavily on macroeconomic stability, consumer confidence, and private investment in both manufacturing and infrastructure—factors that the EV incentive phase-out could negatively impact.
Long-Term Implications
In the long run, the EV incentive phase-out may serve as a stress test for the Indian EV ecosystem. It will reveal which business models are resilient and which depend heavily on policy support. It may also encourage manufacturers to become more cost-efficient, push for better energy density in batteries, and focus on real-world usability rather than merely chasing incentives.
That said, India must be cautious not to lose the gains achieved over the last five years. To maintain momentum, policymakers must develop a balanced approach—offering transitional incentives while encouraging self-sufficiency and innovation in the sector.
Table: Impact of EV Incentive Phase-Out on India’s Electric Mobility Ecosystem
| Impact Area | Under FAME-II (Before March 2024) | Post EV Incentive Phase-Out (After March 2024) |
|---|---|---|
| Vehicle Pricing | Subsidies up to ₹10,000/kWh reduced upfront cost significantly | Prices of e-2W, e-3W, and buses have increased by ₹10,000–₹25,000+ per unit |
| EV Demand (2W & 3W) | Strong monthly sales, e.g., 85,000+ e-2W units sold monthly in FY24 | Temporary demand dip observed, especially in cost-sensitive markets |
| OEM Financial Stability | Government reimbursements improved working capital liquidity | Strain on small OEMs due to revenue compression and higher operating costs |
| Charging Infrastructure | 7,432+ public stations sanctioned with FAME-II support | Funding gap may slow private investment in Tier-2/3 cities |
| Local Manufacturing | DVA (Domestic Value Addition) compliance drove component localization | Localization momentum risks slowdown without conditional incentives |
| State Government Support | State policies complemented FAME-II subsidies (e.g., Delhi, Maharashtra, Tamil Nadu) | Some states continue limited rebates, but less consistent across India |
| Fleet Electrification | High adoption in e-rickshaw and e-bus categories | Institutional buyers may delay purchases due to higher initial costs |
| Transitional Support (2025) | PM e-Bus Sewa and EMPS launched with ₹11,400+ crore funding | Interim relief, but FAME-III awaited for long-term clarity |
| Consumer Confidence | High awareness and incentive-led affordability | Decline in lower-income segment; demand shifting to premium and commercial buyers |
| Policy Direction | Centralized, unified subsidy structure | Fragmented support; long-term strategy pending in upcoming budget (FAME-III) |
Conclusion
The EV incentive phase-out marks a defining moment for India’s electric mobility journey. While it challenges OEMs, infrastructure developers, and consumers alike, it also offers an opportunity to transition toward a more sustainable and self-reliant EV ecosystem. The decisions made in the next few months—especially around policy, funding, and industry collaboration—will determine whether India can continue accelerating toward its electrification goals or whether progress will plateau. With strategic planning and coordinated action, the EV sector can not only survive the EV incentive phase-out but thrive beyond it.