Firms eye favourable tax structure, incentives to boost domestic manufacturing amid the current geopolitical turmoil, smart financing solutions and charging infrastructure development
The world is accelerating towards clean mobility solutions, thanks to the growing ill-effects of emission and climate change. India, which wants to become a net-zero economy by 2070, too has pushed ahead in this direction and has been putting in place policy enablers to boost the uptake of clean mobility options, especially electric vehicles. Not surprisingly, the EV ecosystem in India has burgeoned to significant proportions, registering eye-catching growth in various segments.
According to the Clean Mobility Shift’s EV Dashboard, around 14,38,645 units were sold in India as of December last year, registering an EV penetration of 5.56% across various vehicle segments. Electric two wheelers and three wheelers continued to dominate the sales, selling 7,16,052 units and 6,43,983 units respectively till December 2024. In the e-four-wheeler segment, 69,217 units were sold across India while 3,224 e-buses were included in various fleets last year.
However, despite the significant uptake, the road is riddled with challenges. As the Indian government prepares to come out with its vision for long-term economic and sustainable growth for 2025-26 and presents its Budget on February 1, stakeholders in the automotive and EV sector are eagerly expecting policy measures that will not hand hold the industry to further scale up manufacturing but also help further scale up adoption of these clean vehicles.
Fig 1: Workers at Tata Motors’ new Omega factory. Pic by HT Auto/ Sameer Contractor
Tax Structure and Boosting Domestic Manufacturing
Many industry leaders stressed that the Union Budget is an opportunity for the government to address some of the urgent challenges faced by the automotive sector. Piyush Arora, MD and CEO of Skoda Auto Volkswagen India said a long-term vision for favorable tax structure catering to different automotive technologies would certainly benefit the industry.
“The product development cycles are quite lengthy and require substantial investment which needs to be considered. Simplifying the GST structure for the different classes of vehicles and components is another ask,” he said.
Other industry voices echoed similar reactions. Kunal Arya, Co-Founder and Managing Director at ZELIO E Mobility Ltd urged the government to reduce GST on spare parts from the current 28% to a more realistic range of 5-12%. “This adjustment will substantially reduce production costs, allowing manufacturers to pass on the benefits to consumers, thereby further accelerating the adoption of electric vehicles,” he said.
Amid the current geopolitical turmoil and India’s dependence on imports in this sector, others believe that this is also an opportune time for the government to come out with policy enablers which boost domestic manufacturing and plug our import vulnerability. “The Government‘s PLI scheme facilitates in boosting investments in domestic manufacturing. Budget allocation on facilitating the EV ecosystem like charging infrastructure will give further lift to sustainable mobility. Allocating a budget for better and safe road infrastructure will facilitate the growth of the auto industry,” added Arora.
Founder of Aoki Mobility Randheer Singh noted that strategic investments in electric bicycles can drive economic empowerment, reduce congestion, and provide last-mile connectivity while aligning with India’s net-zero ambitions. With a unique blend of affordability, efficiency, and sustainability, electric bicycles offer an ideal solution for the transportation challenges faced by rural populations, especially women, delivery workers, postal employees, and urban commuters, he said.
“The government should reduce GST on electric bicycles from 5% to 0% and introduce direct subsidies of Rs 10,000 for electric bicycles priced below Rs 40,000 and Rs 15,000 for electric bicycles priced below Rs 60,000 can encourage adoption. At the same time, providing production-linked incentives (PLI) for domestic manufacturing of electric bicycles and components will also reduce dependency on imports,” Singh pointed out.
Subsidies and Incentives
To accelerate the widespread EV adoption, the industry also urged the government to come out with subsidies like the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) scheme. The government had launched the scheme in 2015 to boost the uptake of electric and hybrid vehicles. The first phase (with a budget of Rs 895 crore) operated from 2015 to 2019, while the second phase (with a budget of Rs 11,500 crore) was from 2019 to March, 2024.
“The government must introduce long-term subsidies akin to the FAME scheme, which will not only support the industry’s expansion but also encourage widespread consumer adoption of electric vehicles. Consistent policy backing will give manufacturers the confidence to invest in innovative solutions and scale production,” Arya said.
He added that the government should also provide subsidies for the establishment of EV manufacturing plants. “Facilitating this capital-intensive infrastructure will enable India to emerge as a global leader in EV production, stimulating local economies and fostering technological advancements,” he pointed out.
Fig 2: IndoSpace is set to develop two logistics parks in Karnataka for an investment of ₹580 crore(IndoSpace)
Focus on India’s Logistics Sector
Around 70% of India’s 4.6 billion tonnes of goods is moved annually by the rapidly growing freight transport industry, that comprises mostly diesel trucks, which despite representing just 3% of the total vehicle fleet, are responsible for 53% of PM emissions. Given this scenario, it makes perfect sense to move towards sustainable urban logistics and create multiple hubs that can provide transhipment space by splitting urban and interurban traffic, ensuring that fewer vehicles move inside the cities.
Pali Tripathi, CEO, Taabi.ai Mobility Limited (RPG Group) pointed out that the logistics sector presents a unique opportunity to unlock massive growth and innovation, especially when India continues to position itself as a global leader in technology-driven industries.
“The upcoming Union Budget holds the potential to propel India into the forefront of logistics technology by supporting the integration of emerging technologies like AI, IoT, robotics, automation, and 5G. To achieve this, we urge the government to prioritize the development of a National Technology Strategy for Logistics, enabling the seamless integration of cutting-edge technologies into the sector. Establishing a National Logistics Technology Council will ensure coordination between the government, industry, and academia, facilitating the creation of a robust framework that aligns with global standards,” Tripathi said.
She maintained that the government should focus on building technology-driven infrastructure, including smart logistics parks, IoT-enabled transport systems, and advanced port and highway technologies to not only improve operational efficiency but also reduce the carbon footprint of logistics operations. “Additionally, by enhancing Dedicated Freight Corridors (DFCs) with automation and real-time data analytics, we can significantly reduce transit times and costs, further boosting India’s logistics competitiveness,” she said.
Tripathi pointed out that another crucial step to accelerate adoption of technologies across this sector will be to provide tax incentives and subsidies for logistics companies adopting AI, IoT, and robotics.
“A government-backed logistics technology innovation fund will support startups and SMEs, empowering them to develop new solutions and bring innovations to market faster,” she said, adding that fostering Public-Private Partnerships (PPP) to drive the development of autonomous vehicles, drone-based delivery systems, and real-time predictive analytics will help position India as a global testbed for logistics technologies.
Financing Solutions
According to an earlier report by NITI Aayog and Rocky Mountain Institute (RMI), the estimated size of the annual EV finance market will be Rs 3.7 lakh crore (USD 50 billion) in 2030. “Simplifying access to financial services from banking institutions is another vital need of the industry. More accessible lending schemes and flexible credit options will allow EV manufacturers to expand their operations and bring high-quality products to market at a faster pace,” said Arya.
Elaborating about the e-bicycle sector, Singh added that the introduction of low-interest financing options for electric bicycle buyers through rural banks and NBFCs will also make them more accessible to lower-income groups.
Meanwhile, Arora added that there are early signs of auto industry growth slowing down. “Therefore, budgetary initiatives to boost disposable income of consumers is necessary to support robust growth. I am optimistic that this Budget will introduce practical and forward-looking measures to strengthen the automotive sector and support its role in India’s economic growth and environmental ambitions," he added.
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