New Delhi: The prime minister’s office (PMO) has sought reworking of a proposal to offer incentives of as much as ₹ 5,500 crore ($759 million) for electric cars as it wants to use most of the funds to encourage local manufacturing of lithium-ion batteries, which form the core of such vehicles.

The PMO last week returned the proposal prepared by the department of heavy industry, which sought the incentives solely for electric vehicles (EVs), two people familiar with the matter said. The PMO has instead asked the department to redraft the plan, incorporating ways to promote local manufacturing of lithium-ion batteries to reduce their prices, as well as of battery-powered vehicles, the two people said on condition of anonymity.

The PMO conveyed its decision ahead of the first edition of the Global Mobility Summit that took place in New Delhi on 6 and 7 September. The summit, attended by several industry leaders and addressed by Prime Minister Narendra Modi, was aimed at discussing the future of mobility.

Four days before the summit, the PMO expressed its reservations on the lack of emphasis on lithium-ion batteries in the so-called second phase of the Faster Adoption and Manufacturing of Electric and Hybrid Vehicles (FAME) scheme. The current imbroglio will delay the introduction of the scheme.

“The PMO had its reservations about the lack of emphasis on manufacturing of lithium-on batteries in the final draft of the FAME scheme, as batteries are the most important and expensive part of electric vehicles," one of the two people cited earlier said. “The officials wanted to know what steps will be taken to reduce the cost of batteries in India that will help make EVs affordable."

The PMO and the department of heavy industry did not respond to emails seeking comment.

To be sure, India does not produce lithium or cobalt and will have to be imported these, unless it acquires mines in lithium-rich regions such as Latin America and Australia.

The PMO wants to build an ecosystem for manufacturing electric vehicles, especially batteries, in India and does not want to repeat the outcome of the solar power generation push, which saw an import of bulk of panels from different countries rather than them being produced locally.

“If battery manufacturing doesn’t pick up in the domestic market and costs don’t come down in the future, no one will be able to afford EVs after the second stage of FAME will be over," the second person said. “The PMO also wants to make India the hub for making batteries, which will generate a lot of employment. They don’t want EV manufacturing to go the solar way where bulk of panels are imported."

The impasse will likely result in a delay in the implementation of the FAME scheme. The scheme has already been extended three times.

The Indian automobile industry was looking forward to an announcement by the Union government on the second phase of the scheme, wherein the proposed outlay of ₹ 5,500 crore is almost eight times more than the ₹ 700 crore sanctioned in the first phase.

The government is seeking to push sales of electric vehicles to cut rampant pollution afflicting most of its major cities.

Companies such as Maruti Suzuki India Ltd and Hyundai Motor Co. have already unveiled their electric vehicle plans for India, where about 3 million fossil fuel-powered passenger vehicles are sold annually.

Maruti’s parent, Suzuki Motor Corp., which has partnered Toyota Motor Corp. to make small electric vehicles in India, has also teamed up with Denso Corp. and Toshiba Corp. to build a lithium-ion battery manufacturing plant in Gujarat.

Earlier this year, Mahindra and Mahindra Ltd and South Korea’s LG Chem announced their plans to collaborate on lithium-ion battery technology.

An expert said the Indian government does not want electric vehicles to become a “subsidy game".

“Instead of giving direct incentives to manufacturers through their vehicles, the Prime Minister probably wants to go to the root of the problem," said Suvranil Majumdar, head of electric mobility projects at International Finance Corporation. “If battery prices don’t come down, then it will be always a subsidy game. If battery manufacturing infrastructure is successfully installed, then most of the hurdles will be removed."

During industry lobby Automotive Component Manufacturers Association of India’s annual session on 5 September, Anant Geete, union minister for heavy industries, said Prime minister Modi was supposed to unveil the second phase of the FAME scheme at the Global Mobility Summit organized by government’s policy think tank Niti Aayog.

In an inter-ministerial meeting in August, the government sanctioned ₹ 5500 crore for the second phase of the FAME scheme. The new avatar would have also included ₹ 1000 crore towards installing vehicle charging stations across the country.

Mint on 31 August first reported that the government plans to provide ₹ 1,000 crore as subsidy to build a nationwide charging infrastructure for electric vehicles as it seeks to expedite the roll-out of India’s ambitious electric vehicle programme.

The automobile companies which brought their top executives to India for the Global Mobility Summit were looking for a policy direction from the union government during the summit in order to devise their respective plans about launching electric vehicles in India.

Subscribe to Mint Newsletters * Enter a valid email * Thank you for subscribing to our newsletter.

Share Via