FAME-II Controversy: Hero Electric Receives Notice For Subsidy Recovery

Long under fire for alleged violations of the FAME-II scheme requirements, Hero Electric has now received communication from the government seeking recovery of over Rs 100 crore claimed previously. Concluding its investigations, the Ministry of Heavy Industries (MHI) is understood to have served a notice to Hero Electric, as well as Okinawa Autotech, on April 29, 2023, about their debarment from the scheme, cumulatively recovering over Rs 200 crore paid to both manufacturers under the FAME-II scheme. The notice sent to Hero Electric refers to two-wheelers the company manufactured in FY19-20.

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Hero Electric, which, on April 30, had initially refused to have received any such communication, has acknowledged the notice, but remains firm in its stance about not having committed any wrongdoing, maintaining the controversy is a result of a mere ‘difference in interpretation’ and the question of any refund ‘does not apply’.

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“Yes, we have received a letter referring to the bikes manufactured 3 to 4 years back. The letter from MHI pertains to the period 2019-20. The said issue arose due to the difference in interpretation of validity of FAME certificates versus the stipulated deadlines as per the policy. We have checked the FAME localisation guidelines in the subject period, and find that our bikes fully comply with the CMVR/FAME certificates and their extensions in the subject period. Hence, the question of refund etc does not apply. We are in active discussions with the CMVR testing agencies and MHI to sort this out quickly. We are confident that there will be no issue or a dispute with the Ministry on this account”, Hero Electric CEO Sohinder Gill told carandbike.

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Okinawa, in its response, denied having received a notice from the government, insisting that the matter is an ‘industry-wide’ issue, as companies were ‘importing certain components’ not available locally, in 2020 and 2021, when the world was reeling from the after-effects of the COVID-19 pandemic.

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“The FAME-II policy was announced in 2019 with various conditions, one being the phase-wise localisation of components over the next 2 years. However due to COVID-19 wave 1 and 2, these norms were relaxed for all players. Based on anonymous emails, the government has recently reopened audits for 2020 and 2021 where all companies were importing certain components which weren’t manufactured in India. So, the issue is industry-wide, and the ministry has all the relevant proofs of all OEMs. We believe the government will be fair in its assessments and its ruling will be consistent across all the industry players and not just Okinawa Autotech. In the meantime, we expect the government to also resolve the issue of pending subsidies which have been on hold for the last 12 months”, Okinawa Autotech Founder and MD Jeetender Sharma said in response to a carandbike query.

Okinawa's flagship, the Okhi-90, costs nearly Rs 2 lakh (on-road) without subsidies.

Echoing Sharma’s views, Gill added, “We believe that the policy should be flexible and needs to accommodate the challenges faced by the companies. Hence, it is important that any issue that threatens to derail the electric mobility targets of the country should be resolved considering the ‘on ground’ situation and the market realities.”

At present, scooters from both Hero Electric and Okinawa Autotech are not eligible for subsidies under the FAME-II scheme. With the cushion of subsidies pulled away, Okinawa was forced to increase prices of its models by a substantial margin a few months ago, with its flagship scooter, the Okhi-90, now retailing at close to Rs 2 lakh (on-road), making it the most expensive electric scooter on sale in India.

Even Hero Electric has been forced to price its updated Optima CX 2.0 and 5.0 scooters over Rs 1 lakh, in the absence of subsidies.

Even Hero Electric, which up until now had limited itself to the sub-Rs 80,000 e-scooter market, is now retailing its Optima CX 2.0 and Optima CX 5.0 scooters at Rs 1.06 lakh and Rs 1.30 lakh (both prices, ex-showroom), respectively.

Despite the possibility of being debarred from the scheme altogether, Gill remains optimistic about the government scrutinising the company’s current offerings, in the hope of being included in the FAME-II subsidy scheme once again.

“We are yet to receive intimation of testing by any appointed agency so far with respect to the current production and await examination just like other OEMs. We are confident of passing muster once our vehicles are tested on the same parameters”, Gill told carandbike.

The controversy relating to alleged subsidy misappropriation, as well as manufacturers ducking the price limit by excluding the cost of the charger from their vehicle’s price, has sparked a debate on whether the government will extend the FAME scheme, which has been instrumental in promoting EV adoption, beyond its current March 31, 2024 deadline. While most industry figures agree that taking subsidies away may hurt the growth of the EV sector and that an extension would be desirable, it appears increasingly likely that the scheme may be discontinued once the previously-set targets have been met.