With 64% of consumers likely to choose electric vehicles (EVs) as their next purchase, the stage is set for transformative growth in India’s EV sector. The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman on February 1, is anticipated to include reforms critical to driving sustainability, boosting adoption, and strengthening domestic manufacturing.

Uniform GST Rates

Currently, EVs are taxed at a favourable 5% under the Goods and Services Tax (GST) regime, while EV batteries and components are subject to higher rates of 18-28%. This disparity creates an inverted tax structure, inflating production costs and dampening manufacturers’ profitability. Industry leaders urge the government to harmonise GST at 5% across EV components and batteries. This move will make EVs more affordable, fostering wider adoption.

Extension of FAME II Scheme

The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME II) scheme has been pivotal in promoting EV adoption through subsidies and incentives. With the scheme nearing its expiration, stakeholders are advocating for an extension. Prolonging this scheme will provide a stable policy environment for manufacturers, support consumers, and sustain the current growth trajectory of the EV market.

Incentives for Customers

Affordability remains a primary challenge to EV adoption in India. The industry has proposed interest rate reductions on EV loans and targeted subsidies for buyers to bridge the affordability gap. These measures would make EVs accessible to a wider audience, accelerating their acceptance as the preferred transportation mode for urban and rural users.

Priority Sector Status for Charging Infrastructure

The development of a robust charging network is critical to EV adoption. Financing remains a challenge when setting up charging stations, particularly in underserved areas. Granting priority sector status to EV charging infrastructure would reduce borrowing costs, encourage investments, and expand the charging network, enabling greater penetration of EVs across the country.

Promotion of Local EV Battery Manufacturing

India’s reliance on imported EV batteries exposes the sector to supply chain disruptions and higher costs. Establishing a strong local battery manufacturing ecosystem is essential. The industry advocates for performance-linked incentives (PLI) to attract investments in domestic battery production. This initiative would bolster supply chain resilience, foster innovation, and create employment opportunities while reducing import dependency.

Encouraging International Collaborations

Positioning India as a global leader in the EV ecosystem requires strategic international partnerships. Collaborations with global players can bring advanced technologies, expertise, and investments to the Indian market. The government can help India emerge as a key player in the global EV landscape by facilitating joint ventures and knowledge exchange.

The Union Budget 2025-26 presents an opportunity for India to strengthen its EV sector through supportive policies. Aligning GST rates, extending FAME II, incentivising consumers, prioritising charging infrastructure, promoting local manufacturing, and fostering international collaborations are essential steps to accelerate the EV revolution. By addressing these areas, India can reduce its carbon footprint and establish itself as a hub for sustainable mobility solutions.