India’s electric vehicle revolution has reached an inflection point. With 2.3 million electric vehicle registrations cresting 8 per cent of 2025 sales, the sector stands poised between genuine transformation and stalled momentum. As Finance Minister Nirmala Sitharaman prepares the Union Budget 2026-27 for its 1st February unveiling, the electric vehicle ecosystem besieges Delhi not with pleas for episodic subsidies but with demands for structural sinews—manufacturing incentives, research and development fortifications, and import emancipation that can slash dependence on Chinese technology, stanch crude oil import haemorrhage, and fortify the projected $1 trillion market valuation by 2034. Deloitte India’s Sheena Sareen distils the industry’s crusade: recalibrated Production Linked Incentives, tax incubators for batteries and power electronics, and capital goods threshold reforms that together would “reduce reliance on imported technologies, promote indigenisation, and cut crude oil imports,” alongside Prime Minister Electric Drive extension, pollution-linked taxation, and goods and services tax inversions.
Manufacturing Primacy: Incentives That Actually Work
Electric vehicle maturation from experimental curiosity to 8 per cent market share demands manufacturing primacy, with Production Linked Incentive recalibration topping industry wishlists. Relaxed domestic value addition norms, lowered investment thresholds unleashing startup participation, and tiered supplier inclusion—currently exiled by stringent eligibility conditions—constitute the central asks. Sareen elucidates that reformed criteria “will help companies unable to avail incentives due to stringent eligibility conditions,” whilst research and development tax breaks could catalyse gigafactory ambitions from manufacturers like Ola and Tata pursuing 30 gigawatt-hour capacity targets, building on Production Linked Incentive 2.0‘s ₹26,000 crore foundation.
Industry analysts echo the call for stable, extended incentives vaulting critical components including lithium iron phosphate and nickel manganese cobalt batteries, motors, and controllers currently trapped in a 55 per cent Chinese dependency stranglehold that indigenisation must break. Capital goods scheme expansion beckons specifically for automotive and electric vehicle sectors, spurring domestic production of dies, presses, and computer numerical control machinery that remain import-heavy chokepoints. Industry executives emphasise that “domestic manufacturing capability will determine the sector’s trajectory,” whilst others petition for Prime Minister Electric Drive extension targeting two-wheeler and three-wheeler segments facing imminent subsidy expiry, alongside pollution-linked internal combustion engine taxation funding subsidies without fiscal strain through “polluter pays” mechanisms.
Analogous Budget 2025 proposals lauded national clean-tech mission frameworks encompassing batteries, motors, and controller ecosystems positioning micro, small, and medium enterprises as the “second engine” of growth. Projected outcomes crystallise around localisation hitting 70 per cent by 2028, exports of models like Mahindra‘s BE 6e penetrating European Union and United States markets, and foreign exchange conservation through oil import arbitrage worth $10 billion or more annually. Production Linked Incentive evolution must synchronise with FAME-III‘s 30 per cent penetration mandate, with startup-friendly thresholds potentially halving domestic value addition requirements from 25 per cent to 15 per cent during early operational phases, ensuring policy continuity and “a more integrated view of clean mobility linking vehicles, charging infrastructure, and power supply” as industry consensus demands.
Tax Architecture: Making Electric Vehicles Affordable
Indirect taxation reform magnetises industry attention, though goods and services tax restructuring faces constraints with current 5 per cent rates on small electric vehicles and 18 per cent on premium models limiting scope for broad reductions. However, inverted duty structures—where input taxes exceed output taxes—embed hidden costs requiring refund extensions to capital goods and input services alongside export-linked relief as paramount priorities. Strategic tax interventions “would directly improve electric vehicle affordability,” particularly through special valuation branch simplification eliminating provisional duties on related-party imports that currently create supply-chain uncertainty for component flows from parent companies.
Industry projections of $1 trillion market valuation by 2034 hinge on structural reforms including comprehensive goods and services tax credit mechanisms and duty rationalisation, with two-wheelers representing 95 per cent of electric vehicle sales constituting the affordability battleground. Research and development tax incubators could localise power electronics and inverter production, whilst Corporate Average Fuel Economy norms propel electrification and hybrid technology adoption requiring “significant industry investments in energy-efficient technologies.” Policy stability frameworks encompassing battery technology, charging infrastructure, and clean mobility scaffolding would compound FAME subsidy effectiveness, with rural demand stimuli and customs duty clarity bridging the rural internal combustion engine to electric vehicle arbitrage gap through strategic road infrastructure allocations.
Customs duty catharsis through streamlined special valuation branch norms and eased related-party scrutiny would enable component inflows from manufacturers like BYD and Tesla without regulatory uncertainty, fortifying Production Linked Incentive-linked exports targeting the ₹5 lakh crore ecosystem valuation whilst goods and services tax input credit extensions amplify fiscal multipliers cascading through micro, small, and medium enterprise supply chains.
Infrastructure Investment: The Charging Network Imperative
Charging infrastructure constellation gaps—with 1.3 million additional charging points required—crave direct budgetary lifelines encompassing public and private network expansion, grid capacity upgrades, and renewable energy tethering potentially analogous to the Revamped Distribution Sector Scheme‘s ₹18,000 crore infrastructure commitments. Pollution-linked taxation revenues could fund infrastructure build-out, whilst the subsidy-battery-charging infrastructure triad steels India‘s position in global automotive supply chains through enhanced export competitiveness, customs duty optimisation, and research and development acceleration.
Industry perspectives pivot explicitly “from adoption momentum to manufacturing reality,” with 2.3 million registrations underscoring market scale beyond short-term subsidy dependence. Corporate Average Fuel Economy evolution—stopping short of carbon taxation—orchestrates low-emission technology vectors, whilst budget allocations for clean-tech missions attract foreign direct investment from players like Northvolt establishing Indian gigafactory operations. A “well-designed policy mix would support India’s clean energy ambitions whilst strengthening external balances” through reduced petroleum import bills, with investment-led budget thrust positioning electric vehicles as economic linchpins. Future horizons gleam particularly bright with European Union Free Trade Agreement battery technology inflows compounding domestic capacity, supporting $1 trillion market projections whilst Bharat 2.0 frameworks forge comprehensive e-mobility ecosystems integrating vehicles, energy infrastructure, and urban planning.
The electric vehicle sector’s Budget 2026 imperatives—Production Linked Incentive recalibration, targeted tax incubators, capital goods threshold reforms, goods and services tax inversion corrections, and charging infrastructure lifelines—promise to transmute today’s 8 per cent market share into 30 per cent dominance whilst conserving foreign exchange and breaking Chinese technology dependencies. Industry voices emphasising manufacturing capability’s “critical role in scaling up electric vehicle production,” pollution-linked taxation funding mechanisms, and policy stability frameworks forge manufacturing reality from adoption promise. Sitharaman‘s budgetary palette must wield not palliatives but structural pivots—India’s $1 trillion electric vehicle colossus demanding not aspirational rhetoric but hard budget allocations transmuting clean mobility from political talking point into sovereign industrial achievement assured through fiscal architecture.