Union Budget 2025-26 and Electric Vehicles: A Path to Localisation and Risk Mitigation

The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, underscores a strategic push for the localisation of electric vehicle (EV) manufacturing and securing the raw materials necessary for battery production. This budget signifies a strengthened industrial policy that not only aims to foster the development of EVs but also ensures a self-reliant ecosystem for their production.

The growing focus on electrification presents a unique opportunity to align climate action with industrial development, driving both clean energy transitions in the automotive sector and environmental goals. The budget further connects this vision to mass public transport, especially electric buses, to amplify energy savings and reduce emissions in urban areas.

Key Budget Highlights:

1. Support for EV Manufacturing

The budget includes incentives and exemptions aimed at boosting EV manufacturing in India. This includes the removal of customs duties on 35 capital goods essential for EV battery production. Additionally, there is a push for domestic manufacturing of components like motors and controllers, as well as aligning EV production with clean technology initiatives.

2. Commitment to PM-eDrive

A significant allocation of ₹4,000 crore has been made for the PM-eDrive scheme, which aims to upscale the electrification of the two-wheeler and heavy-duty vehicle segments. This funding will facilitate the adoption of electric vehicles across various transport sectors.

3. PM e-Bus Sewa

The budget also provides support for the PM e-Bus Sewa, which aims to upscale electric bus services in cities. A payment security mechanism has been introduced to ensure the procurement and sustainability of electric buses, supporting the decarbonisation of urban mass transport.

4. PLI Scheme for Advanced Battery Production

The government continues its support for the Production Linked Incentive (PLI) schemes, with a specific focus on advanced chemistry cell manufacturing, essential for EV batteries.

Ecosystem Approach to Localisation:

This year’s budget demonstrates a more cohesive approach to the localisation of India’s EV industry. The Economic Survey, presented just before the budget, highlights the urgency of local manufacturing to reduce reliance on imports, especially from countries with which India has large trade deficits. It emphasizes that the transition to EVs will require a robust supply chain, particularly in terms of critical minerals for battery production.

The survey points out that nearly 75% of the emissions in the transport sector come from road transport, underlining the significance of accelerating the transition to electric mobility to meet India’s net-zero emissions target by 2070. However, it also highlights concerns about India’s dependence on imports, particularly from China, for the materials needed for EV production. If not addressed, this could jeopardize the success of India’s EV strategy.

Building Material Security and Local Manufacturing Capacity:

The importance of securing the supply of essential materials for EV production cannot be overstated. The Survey warns that manufacturing an electric vehicle requires six times more minerals compared to traditional internal combustion engine vehicles. Therefore, the localisation of material processing and battery manufacturing is paramount.

To mitigate the risks associated with supply disruptions, especially given China’s dominance in the global supply chain, India must expedite the indigenisation of battery technologies and raw material processing. This includes efforts toward the development of new battery chemistries, particularly Sodium-ion and Solid-State Batterie, as well as scaling up efforts for battery recycling to ensure material security.

The Centre for Science and Environment has proposed that India can leverage the localisation strategy as an opportunity to build capacity for cell and battery development. A national battery development program could foster large-scale production of advanced cell technologies, encourage circularity in material use, and help India stay competitive in the global EV market.

Regulatory Support and Demand Creation:

For the budget’s focus on localisation to translate into substantial growth, the government must create a strong market pull for EVs. This means implementing binding regulatory targets for electrification, a zero-emissions mandate for supply-side management, and stricter fuel economy standards. Without these regulatory enablers, the demand for EVs in the domestic market may remain sluggish, preventing the full scaling of localisation efforts.

Continued Support for Electric Buses:

While the focus on electric buses under the PM e-Bus Sewa scheme is a significant step toward decarbonising public transport, it is essential to view this initiative within a broader framework. The Economic Survey stresses the importance of expanding public transportation networks, arguing that public mobility solutions, rather than private electric vehicles, will ensure a more equitable energy transition. Expanding the EV public transport network not only reduces India’s dependence on foreign supply chains but also makes clean mobility accessible to all, contributing to a more resilient and equitable energy transition.

Conclusion

As the government takes steps to accelerate the localisation of EV manufacturing and secure the supply of critical materials, India stands at a critical juncture in its transition to electric mobility. The Union Budget 2025-26 has laid the groundwork for a self-reliant EV ecosystem, combining industrial policy with environmental goals. However, the success of these initiatives will depend on continued investments in R&D, robust regulatory frameworks, and the expansion of public transport systems. With the right focus and momentum, India can secure its position as a global leader in the electric vehicle revolution while contributing to a cleaner, more sustainable future.