PM E-DRIVE amendments: Aligning incentives with a maturing market

The amendments to India’s PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme reflect a sophisticated policy evolution in e-mobility. The changes mark a significant recalibration of India’s electric vehicle (EV) incentive framework since the transition from FAME-I (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) to FAME-II. The amendments also align with priorities identified by IEEFA in its report on a decade of EV policy implementation.

The changes introduce dual timelines recognising varying market maturity levels across vehicle segments. While maintaining the original March 2026 deadline for purchase incentives for electric two-wheelers, rickshaws, carts, and L5 three-wheelers, the scheme extends support until March 2028 for electric trucks, buses, charging infrastructure, and testing agency upgrades.

The budget remains unchanged at Rs109 billion (US$1.25 billion), now spread over four years instead of the original two.

Incentive design for electric 2-wheeler

IEEFA’s econometric modelling found significant policy responsiveness with FAME-II driving a 9x market multiplier effect for electric two-wheelers. However, it observed that adoption rates remained modest at 4% by 2023-end despite absolute sales growth.

The analysis also highlighted divergence within the segment: While e-scooters have been gaining market traction, e-motorcycles lag with low adoption rates, pointing to the need for differentiated support. The PM E-DRIVE’s approach of maintaining the March 2026 timeline while reducing subsidy rates (from Rs5,000 to Rs2,500 per kWh in the second year) aligns well with our recommendations for gradual subsidy tapering. However, calibrated support beyond 2026 may remain necessary.

Boosting e-motorcycle adoption needs sustained transitional support. The absence of dedicated incentive under PM E-DRIVE limits targeted demand-side measures. The weak adoption also stems from limited model availability and supply-side gaps. Addressing these barriers requires coupling demand incentives with supply-side interventions.

Resource reallocation within 3-wheelers

The reallocation within the 3-wheeler category reflects a segment-specific maturity. Our analysis shows that passenger e-rickshaws, which dominated early growth under FAME-I, successfully transitioned from policy-driven expansion to market-led growth, generating a 10x multiplier effect and establishing commercial viability.

In contrast, the L5 category represents more advanced three-wheelers, with higher performance requirements and greater scope for technological upgrading. The revised plan redirects Rs1.42 billion (US$16 million) from e-rickshaws/carts to L5 electric three-wheelers. This cuts e-rickshaw/cart coverage to 39,034 vehicles with Rs500 million (US$5.74 million) allocation (a 73% reduction in total subsidy), while support to L5 three-wheeler rises to 2,88,809 vehicles with Rs8.57 billion (US$98 million) allocation (20% increase).

Furthermore, the reduction from Rs5,000 to Rs2,500 per kWh along with reduction in the maximum cap across both e-rickshaw/carts and L5 three-wheelers follows the graduated approach IEEFA’s analysis suggests. 

The reallocation indicates that the government is optimising fiscal resources by directing support where it can stimulate deeper market development, encourage original equipment manufacturer (OEM) innovation, and expand beyond low-end technology pathways. 

Missing element

There are a few divergences from IEEFA’s assessment. One, the continued exclusion of private e-bus operators from subsidy support, limiting deployment. An even greater gap is the continued exclusion from PM E-DRIVE of commercial e-cars, a segment that represents one of the greatest opportunities for India’s EV transition and showed exceptional responsiveness to FAME-II subsidy.

Data shows commercial four-wheelers demonstrated the strongest policy responsiveness among all segments, with states implementing purchase subsidy policies witnessing 211% higher sales growth and a 21x market multiplier effect.

Commercial EVs face unique challenges, including competition from CNG alternatives and higher upfront costs, but policy support could unlock wider adoption. 

State-level incentives

With central subsidies tapering for two- and three-wheelers, states will increasingly drive demand-side support. IEEFA analysis shows states that implemented supportive policies—like creating opportunities for specialised financing instruments, streamlining permit processes, and EV zones—achieved significantly higher adoption than those relying solely on central schemes.

PM E-DRIVE’s Rs20 billion (US$230 million) allocation for 72,300 public charging stations and Rs7.8 billion (US$90 million) for testing agency upgrades addresses infrastructure and institutional capacity gaps that remain critical adoption barriers. States can leverage these by coordinating regional charging networks and establishing complementary testing facilities while providing additional fiscal incentives.

States can also expand coverage to excluded segments like commercial e-cars, which demonstrated 3x higher sales in states with fiscal incentive for these. 

The scheme also includes e-trucks, offering subsidies of Rs5,000 per kWh, with maximum incentives between Rs270,000 (US$300,000) and Rs960,000 (US$1.1 million), subject to an ICE vehicle scrapping certificate.

Overall, the PM E-DRIVE amendments reflect an evidence-based policy evolution but excluding commercial e-cars and private e-buses remains a missed opportunity for India's EV transition.

This article was first published in The Hindu BusinessLine.