India’s second-largest e-bus maker finds itself entangled in FAME allegations

One government-accredited vehicle testing agency insists the company wrongly availed subsidies under the FAME scheme, while another says it is compliant with the rules.

The ministry of heavy industries has now formed a team for a second probe into the allegations against PMI Electro Mobility Solutions Pvt. Ltd, according to two officials with direct knowledge of the development.

The Automotive Research Association of India (ARAI) in its audit report to the ministry in November said it had found evidence of PMI using imported auto parts in its electric buses, which would make it ineligible to avail subsidies under the FAME scheme.

PMI Electro Mobility is likely to have received subsidies to the tune of ₹500 crore so far under the FAME scheme, as per Mint’s estimate, considering electric buses typically receive ₹35-50 lakh as subsidies under the scheme depending on specifications such as length and battery size.

PMI has disputed ARAI’s findings.

The company, in response to Mint’s queries, said it had received fresh certification for FAME compliance in March from the International Centre for Automotive Technology (ICAT). Both ARAI and ICAT are government-backed vehicle testing agencies and affiliated with the ministry of heavy industries.

Now, a formal report is awaited from the ministry’s committee, which comprises members from both these agencies, the officials mentioned earlier said, requesting not to be identified.

“We have asked both the agencies to jointly study the localisation at PMI and the joint report will be considered," said one of them, a senior government official.

In response to a query from Mint, PMI said it has “not received any communication from MHI in this regard".

The ministry, ARAI and ICAT did not respond to requests for comment.

Complaints, and an earlier audit

The ₹10,000-crore second phase of the FAME scheme (FAME-II) was designed to promote local manufacturing of electric vehicles in India. To avail the sops, companies had to comply with some strict riders, including on buying parts locally. The scheme was introduced in April 2019 for three years, and later extended up to 31 March, 2024.

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0n 23 September, the ministry of heavy industries asked ARAI to examine the FAME-II certification granted to PMI by ICAT on 8 October 2021. Such a certification is necessary for EV makers to avail the subsidy under FAME, and is granted by authorized vehicle testing agencies.

This ministry ordered the audit after it received complaints that PMI violated FAME guidelines, ARAI states in its audit report that it submitted to the ministry in November. Mint has seen a copy of this audit report.

ARAI executives visited the manufacturing plant of PMI and its key suppliers to inspect their equipment, documents and certificates, the agency stated.

“From the manufacturing plant visit report, it is amply evident that, as alleged by the complainant, M/s PMI are using imported PMP components... in the manufacturing of their electric buses," ARAI said in its report. 

PMP refers to the government’s Phased Manufacturing Plan that stipulated staggered deadlines for localising key components to continue availing subsidies under the FAME scheme.

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PMI imported parts used in its buses such as traction motor, traction battery modules, DC charging inlet, vehicle control unit, and even basic components such as lighting switches and interior covers, ARAI stated in its audit report. 

“FAME-II eligibility assessment including PMP compliance assessment done by ICAT is not as per CMVR and FAME-II guidelines," it added. CMVR refers to Central Motor Vehicles Rules.

ARAI also stated that although PMI’s CMVR certificate mentioned that its vehicles used imported components, when the same test vehicle was assessed for FAME compliance, it was reported to have been fitted with indigenous parts and systems.

The agency recommended the ministry “may take suitable action against M/s PMI, as deemed fit, including de-registration of PMI Electric Bus models under FAME-II."

“Quite Abrupt"

PMI Electro Mobility has denied the allegations.

In response to Mint’s queries, the company said the audit conducted by ARAI was “quite abrupt" and did not follow any standard operating procedures.

“Even to date, we could not understand the reason for the so-called audit and haste in making the report, especially without asking us any query/clarification," a spokesperson for PMI said over email, adding that the company had responded to the ministry’s subsequent queries in detail.

“Post our response, MHI informed us that the report was being kept in abeyance till further notice," the spokesperson said, adding that ICAT had renewed its FAME-II compliance certificate in March.

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Over 7,000 electric buses have been sold in India since 2020, as per vehicle registration data. PMI is the second-highest seller in the country, with over 1,400 of its buses plying on Indian roads, lagging only Tata Motors Ltd.

FAME’s infamy

While the jury is out on whether PMI actually used imported parts, this is not the first instance of such allegations under the FAME scheme. Last year, the government found around seven electric two-wheeler makers wrongfully claiming FAME subsidies and issued recovery notices to the tune of about ₹500 crore.

Experts tracking the sector said policymakers are also to blame. The government set an aggressive timeline for localisation of parts of EVs under the FAME II scheme even before sales could gather enough momentum to support development of a local components ecosystem.

“Localisation of EV components like PMSM motors is extremely difficult as there is no existing ecosystem in the country, nor are there sufficient volumes to justify the large investments it requires," said Hemal Thakkar, senior practice leader and director of transport, logistics and mobility sector at Crisil Market Intelligence and Analytics. “Even today, if we have to make PMSM motors in India, magnets will have to be imported largely from China."

Permanent magnet synchronous motors (PMSM) are high-efficiency motors preferred for use in EVs. These motors require strong permanent magnets as a key component, which to this day are available almost exclusively in China.

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“Now, we are seeing reasonable localisation in two-wheeler components for EVs, but it remains an uphill task to localise components for segments like buses, wherein technological intensity in a few parts is high and they need a high level of expertise, a lot of precision, and involve very small volumes," Thakkar said.

The FAME-II scheme ended on 31 March and a new Electric Mobility Promotion Scheme 2024 was rolled out in April for a four-month period. EMPS 2024, with a total outlay of ₹500 crore, is meant to be a bridge scheme before a successor to FAME-II is formulated.