Introduction

India's electric vehicle revolution is at a critical inflection point. With the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme evolving and the industry anticipating FAME III, stakeholders across the two-wheeler and three-wheeler EV ecosystem are asking one question: What does the future of EV subsidies look like? For individual buyers, fleet operators, and small businesses, these policy decisions will directly impact purchase decisions, operational costs, and long-term viability. In this blog, we break down the likely contours of future subsidy schemes and what they mean for Indian 2W and 3W electric vehicle stakeholders.

The Evolution of EV Subsidies in India

The Indian government introduced FAME I in 2015 to kickstart electric mobility, followed by FAME II in 2019 with a ₹10,000 crore outlay. FAME II focused heavily on public transport and commercial fleets, but also provided demand incentives for two-wheelers and three-wheelers. Under FAME II, electric two-wheelers received subsidies up to ₹15,000 per kWh (capped at 40% of vehicle cost), while three-wheelers received similar support. The scheme successfully boosted sales, but also exposed gaps—such as limited charging infrastructure, dependency on imported cells, and uneven state-level implementation. As FAME II ends, the industry is looking at a more nuanced, performance-linked subsidy framework.

What to Expect from FAME III and Beyond

While official details of FAME III are yet to be announced, industry insiders and policy experts anticipate several key shifts. The new scheme is likely to be more technology-agnostic, focusing on outcomes like energy efficiency, localisation, and battery lifecycle management. Here are the most expected features:

• Reduced subsidy per vehicle but extended over a longer timeline to cover more models
• Stronger linkage to domestic value addition (cells, motors, controllers)
• Performance-based incentives tied to real-world range and energy consumption
• Separate incentives for battery swapping and charging infrastructure deployment
• Special provisions for last-mile delivery fleets and shared mobility operators

These changes aim to make the Indian EV industry self-reliant while ensuring that subsidies reach the right segments without distorting market dynamics.

Impact on Two-Wheeler EV Buyers

For individual consumers, future subsidies could mean lower upfront costs but with stricter eligibility criteria. Under FAME II, only vehicles with advanced batteries (lithium-ion, etc.) and certified range qualified. FAME III is expected to introduce a tiered subsidy structure—higher incentives for models with greater localisation and better energy efficiency. This means buyers may see a wider price range between entry-level and premium electric scooters. For the average commuter, a well-designed subsidy can bring the total cost of ownership (TCO) of an electric scooter below that of a petrol scooter within the first 2–3 years, even with moderate daily usage of 30–40 km.

For the average commuter, a well-designed subsidy can bring the total cost of ownership (TCO) of an electric scooter below that of a petrol scooter within the first 2–3 years.

Three-Wheeler EV Incentives: A Game Changer for Fleets

Three-wheelers—both passenger autos and cargo-loaders—are the backbone of urban logistics and shared mobility in India. Future subsidy schemes are likely to double down on this segment given its high emissions reduction potential. We can expect targeted incentives for fleet electrification, including:

1. Additional 10–15% subsidy for commercial fleet purchases of 10+ vehicles
2. Viability gap funding for battery swapping stations catering to 3W fleets
3. Interest subvention on loans for electric auto-rickshaw purchases
4. Subsidies linked to scrappage of old diesel/petrol three-wheelers
5. Priority in city permits and parking for electric autos

For fleet owners, these measures could reduce payback periods from 3 years to under 18 months, making electric three-wheelers an extremely attractive proposition.

Battery-Swapping and Charging Infrastructure Support

One of the most significant gaps in India's EV ecosystem is charging infrastructure, especially for 2W and 3W vehicles. The upcoming subsidy framework is expected to allocate a dedicated budget for battery swapping networks, given their relevance for last-mile delivery and autos. The government has already released the Battery Swapping Policy 2023, and future schemes will likely offer:

These measures aim to address range anxiety and reduce upfront battery costs, making EVs more accessible for commercial applications.

State-Level Initiatives vs. Central Schemes

While the central government sets the overall direction, states like Maharashtra, Gujarat, Tamil Nadu, and Delhi have been proactive with their own EV policies. Future subsidy schemes are likely to adopt a co-funding model where states match central incentives for specific use cases—such as last-mile delivery fleets or rural EV adoption. This dual-layer approach can create a patchwork of incentives, so stakeholders must stay informed about both central and state-level announcements. For instance, Delhi's EV policy offers additional ₹5,000 per kWh for two-wheelers, over and above FAME II—a trend that may continue and expand.

Cost Economics: How Subsidies Shape Total Cost of Ownership

To understand the real impact of subsidies, let's look at the TCO comparison for a typical electric scooter over 5 years versus a petrol scooter, assuming a subsidy of ₹20,000 under FAME III. Without subsidy, the electric scooter's TCO (including purchase, electricity, maintenance, and battery replacement) is approximately ₹1,20,000, compared to ₹1,50,000 for a petrol scooter. With the subsidy, the electric scooter's TCO drops to ₹1,00,000, a saving of ₹50,000 over five years. For a three-wheeler fleet operating 10 vehicles, the cumulative savings could exceed ₹1.5 crore over the same period, making electrification not just environmentally sound but economically compelling.

Challenges and Unresolved Questions

Despite the optimism, several challenges remain. Subsidy disbursement delays have historically plagued the industry, straining OEM cash flows. Additionally, the lack of a standardised testing protocol for range and efficiency has led to discrepancies between claimed and actual performance. Future schemes must address these operational issues and ensure that subsidies are linked to verified performance metrics. There is also the risk of 'subsidy addiction'—where OEMs design products primarily to meet subsidy criteria rather than consumer needs. A well-crafted policy should phase out subsidies gradually, pushing the industry toward market-driven competitiveness.

Strategic Recommendations for Stakeholders

Based on our analysis, here are actionable recommendations for different stakeholders in the Indian 2W and 3W EV ecosystem:

• For OEMs: Invest in local cell manufacturing and supply chain to qualify for higher subsidies; also develop flexible platforms that can support both fixed and swappable battery configurations.
• For Fleet Owners: Assess total cost of ownership with and without subsidies; consider leasing or BaaS models to reduce upfront costs; also explore partnerships with state agencies for additional incentives.
• For Individual Buyers: Keep track of state-level subsidies in your region; compare different models on range, service network, and battery warranty; also factor in resale value which may improve with localisation.
• For Charging Infrastructure Providers: Align station deployment plans with expected subsidy flows; also explore smart charging and V2G capabilities to future-proof investments.

Conclusion

The future of EV subsidy schemes in India is poised to be more strategic, performance-oriented, and inclusive of emerging technologies like battery swapping and advanced battery chemistries. For two-wheeler and three-wheeler stakeholders, these schemes offer a window of opportunity to accelerate electrification at scale. However, success will depend on proactive engagement with policy changes, careful financial planning, and a commitment to quality and localisation. At EVXpertz, we believe that the next 5 years will define India's position in the global EV landscape—and subsidies will play a crucial role in shaping that trajectory. Stay tuned to our blogs and webinars for real-time updates and expert insights on navigating this evolving policy terrain.