The Indian government has decided to reduce the FAME II subsidy on electric two-wheelers to Rs 10,000 per kWh from Rs 15,000, according to an official notification by the Ministry of Heavy Industries.

Further, the previous cap on the maximum subsidy, which accounted for 40% of the vehicle’s ex-factory price, has now been decreased to 15%.

The Ministry of Heavy Industries has sent a recommendation to an inter-ministerial panel proposing to cut down the existing EV subsidy on electric two-wheelers.

The thinking behind the move is that a reduction in subsidies will help regulators offer benefits to more buyers, said a person familiar with the government’s decision. On the other hand, it also means EV two-wheelers could become more expensive.

The industry had anticipated a gradual reduction of subsidies for two-wheelers, as well as personal electric vehicles (EVs).

FAME’s next iteration is expected to focus on charging infrastructure and shifting from consumer subsidies, YourStory had reported in April, citing three well-placed sources.

Launched in 2015 by the central government, the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme was aimed at catalysing the adoption of EVs in the country. FAME II—the extended form of the original scheme—came into effect in 2019.

“With the reduction of subsidy to 15%, it is clear that the EV ecosystem in India is growing rapidly, and there is demand,” said Siddharth Kabra, Co-founder and CEO of VoltUp.

“While the immediate impact of subsidy reduction will be a rise in price and lower sales, the government in a way is allowing the industry to become independent,” he added.