New Delhi: In an effort to incentivise electric vehicle buyers through cross subsidies, the government is considering a proposal to impose a marginally higher tax on conventional petrol and diesel cars. The finance ministry thinks the proposal should be considered to avoid the additional financial burden that the government incurs as it incentivises buyers under the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme.

The move will also act as a catalyst for the promotion of electric vehicles, the finance ministry has said in a memorandum to the executive finance committee for phase two of the FAME scheme. Mint has reviewed a copy of the memorandum.

Industry experts say the move could impact car sales as it will discourage customers from buying petrol and diesel vehicles in a price-sensitive market like India.

A detailed email sent to the finance ministry remained unanswered till press time. Auto lobby group Society of Indian Automobile Manufacturers (SIAM) declined comment.

However, an executive at the rival lobby group that represents electric vehicle makers welcomed the move. “The government is cash-strapped to offer subsidies. Customers will only get drawn towards EVs when the prices become equal to an ICE (internal combustion engine) vehicle. So, this move makes sense," said Sohinder Gill, director, corporate affairs, Society of Manufacturers of Electric Vehicles, adding that an increase in taxes to the tune of 100 basis points on traditional vehicles will fetch a huge amount, which can provide subsidy for the first one million electric vehicles.

Also read: Govt officials refuse to use electric cars made by Mahindra, Tata Motors

The finance ministry’s view comes in the backdrop of a demand raised by the department of heavy industries for a budgetary requirement of ₹ 9,381 crore to run the FAME scheme till 2022-23. Since Fame is a central government scheme with allocation of more than ₹ 1,000 crore, approval is required from either the cabinet or the cabinet committee on economic affairs.

Avik Chattopadhyay, founder of brand consultancy firm Expereal, called the move “very regressive", saying that a separate fund should be allocated for promotion of alternative fuels. The burden should not be shifted to the buyers of conventional vehicles, he added.

The implementation of the second phase of the FAME scheme has already been postponed thrice and the new scheme is expected to be in place before September this year. The scheme was introduced in 2015 to promote the manufacturing, development and sales of electric vehicles in the domestic market.

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