India approves $1.4 billion electric vehicle incentive scheme

NEW DELHI (Reuters) - India’s cabinet has approved a scheme to spend $1.4 billion to subsidize sales of electric and hybrid vehicles as part of efforts to curb pollution and reduce dependency on fossil fuels.

An employee walks past a Mahindra e2o electric car on display at Mahindra’s showroom in Mumbai, India, May 22, 2017. REUTERS/Shailesh Andrade

Reuters reported earlier on Thursday that the government could approve the scheme, known as Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME), as early as this week.

Under the scheme, subsidies would be offered based on the battery capacity of the vehicle, ranging from buses and cars to three-wheelers and motorbikes, a government statement said. The incentives would be applicable only on vehicles costing less than 1.5 million Indian rupees ($21,177).

The benefits of the incentives will be extended to only those vehicles fitted with advanced batteries using lithium ion or other new technologies, the government said.

India, one of the world’s fastest-growing car markets, still has negligible sales of electric vehicles (EVs).

The government had set a target in 2017 for all new vehicles to be electric by 2030, but critics said the high cost of batteries and a lack of charging points were major obstacles. Carmakers also said the target was too ambitious.

The transport ministry later scaled back that target to EVs making up 15 percent of vehicle sales in five years.

India will spend 100 billion rupees ($1.4 billion) over three years on incentives, the government said.

A source had earlier told Reuters that subsidies would amount to 10,000 rupees for each kilowatt hour (kWh) of battery capacity in a vehicle, amounting to about 50 percent of the battery cost.

The average price of an electric car in India is now about 1 million rupees. Cars typically have a battery up to 20 kWh, so the discount under the new scheme would be 200,000 rupees.

Automakers Mahindra & Mahindra and Tata Motors both produce electric cars in India. Maruti Suzuki and Toyota Motor Co build hybrid cars.

Maruti, controlled by Japan’s Suzuki Motor Corp, last year said it would start testing 50 electric vehicle prototypes. It plans to launch EVs in India around 2020, in cooperation with Toyota.

($1 = 70.8300 Indian rupees)

Reporting by Aditi Shah and Aftab Ahmed; Editing by Edmund Blair and David Goodman