Mild hybrid subsidy withdrawn; Maruti to be hit

The FAME (Faster Adoption and Manufacturing of Hybrid and Electric vehicles) scheme kick started some interesting innovations among Indian cars. Manufacturers such as Maruti and Mahindra quickly launched mild-hybrid models to make best of this scheme. The FAME scheme encouraged the market to buy lesser-polluting hybrid vehicles by giving benefits in the form of cash backs.

Implications of subsidy withdrawal

The government has announced that the benefits (subsidy in the form of cash-backs) have been withdrawn for the mild-hybrid vehicles in the country. However, full-hybrid, plug-in hybrid and electric vehicles will continue to reap the benefits of the scheme.

What’s a mild hybrid?

A mild hybrid vehicle is very different full hybrid vehicle. There is an electric motor that uses power from a larger battery to assist the conventional engine. Unlike on a full-hybrid vehicle, the electric motor on a mild-hybrid cannot run the vehicle on its own. The mild hybrid system uses energy regenerated from the brakes of the vehicle, thus saving more fuel and cutting emissions.

Maruti became the first manufacturer in the country to launch the mild hybrid technology that it calls SHVS (Smart Hybrid Vehicle by Suzuki). The SHVS system was available with the Ciaz, and later on, it also featured on the Ertiga. Maruti only launched the diesel powered vehicles with the SHVS, but the manufacturer did say that there is a possibility of launching petrol vehicles with the same technology in the future. Even though Mahindra launched the Scorpio with similar mild-hybrid technology, the SUV was not eligible for the FAME excise duty benefit (due to engine size), and hence, there were not much difference in the price of the vehicle.

How much does the customer lose?

With the FAME scheme excluding the mild-hybrid vehicles, every customer will now lose around Rs. 13,000. However, the National Electric Mobility Mission Plan (NEMMP) still gives an 11.5% excise duty benefit to mild hybrid cars (with petrol engines displacing less than 1.2 liters and diesel engines displacing less than 1.5 liters) and charges only 12.5% from such vehicles instead of 24%.

The car will remain cheaper than the Honda City, its main rival in the market. According to a NEXA dealership that we spoke with, the removal of the benefit will not have any effect on the ex-showroom price of the vehicles. Even the on-road price will be not be affected as the road tax, and registration charges will remain same. Only the Rs. 13,000 cash-back benefit will be missing from the whole process with the exclusion in place.

Will buying a vehicle immediately benefit you?

Not really. The government has said the vehicle which was sold till 31st March 2017 would get benefits under the scheme. Any new vehicle rolling out of the showroom will not be eligible for the benefit, and the customers will not be able to claim any incentive.

Another possible impact of the government’s decision

Maruti and other prominent car makers such as Hyundai and Mahindra had announced plans of launching multiple mild-hybrid cars in India. This decision may be re-looked by automakers as the government seems keen on promoting pure-hybrid and electric cars rather than just mild-hybrids.