Budget Expectations: Turning EV Momentum into Manufacturing Strength for India’s Auto Sector

India’s auto and electric mobility sector has crossed an important psychological milestone. Electric vehicles are no longer a niche category or a pilot experiment. With EV registrations crossing 2.3 million units in 2025 and accounting for close to eight percent of total vehicle sales, the transition is clearly underway. The more relevant question now is not whether EVs will scale, but whether India’s manufacturing ecosystem can keep pace with that scale in a stable and sustainable way.

As the Union Budget approaches, expectations within the auto and EV industry are notably pragmatic. This is no longer a phase where headline-grabbing incentives alone can move the needle. What the sector is looking for is policy continuity and execution-focused support that strengthens manufacturing fundamentals across vehicles, batteries, and the broader mobility supply chain.

From adoption to execution

The early phase of electric mobility was driven largely by demand-side measures. Purchase incentives, tax benefits, and pilot programmes helped build consumer confidence and kick-start adoption, especially in urban markets. That phase has largely served its purpose.

Today, manufacturers are dealing with a very different set of challenges. As volumes rise, the complexity of operations increases. Battery and EV manufacturing are capital-intensive, long-cycle businesses where success depends on yield optimisation, quality consistency, safety validation, and cost control over time. These are issues that only surface once factories begin operating at scale.

What this really means is that the next phase of growth will be determined less by how many vehicles are sold, and more by how efficiently they are made.

Public investment and mobility demand

For the auto sector as a whole, demand remains closely linked to public investment in infrastructure. Continued spending on roads, highways, logistics corridors, and urban transport systems has a direct impact on vehicle utilisation and replacement cycles. Better connectivity reduces operating costs for fleet operators, improves turnaround times, and strengthens freight movement, all of which support sustained demand across passenger, commercial, and shared mobility segments.

This linkage becomes even more important as EVs gain traction in commercial use cases such as last-mile delivery, public transport, and shared mobility. These segments are highly sensitive to operating economics, and infrastructure-led efficiency gains play a key role in making electric mobility viable at scale.

Tax alignment and affordability gaps

While EV adoption has accelerated, affordability remains a constraint, particularly outside major cities. Earlier fiscal measures, including income tax benefits on eligible EV purchases, demonstrated how targeted incentives can expand the user base. However, structural inconsistencies continue to affect pricing models.

One of the most persistent issues is the GST mismatch between electric vehicles and batteries. EVs are taxed at five percent, while lithium-ion batteries attract a significantly higher rate of 18 percent. This disparity complicates cost structures and creates friction for emerging ownership models such as battery swapping and Battery-as-a-Service.

These models are increasingly important for commercial fleets, logistics operators, and shared mobility players who are expected to drive the next wave of EV adoption. Aligning GST rates across vehicles and essential components would directly lower upfront costs and improve the viability of these models without introducing new subsidies.

Manufacturing scale brings new risks

As EV volumes grow, battery demand is set to rise sharply. Industry estimates suggest that India’s lithium-ion battery market could grow at a compounded rate of 35 to 40 percent through the end of the decade, driven by electric mobility and stationary energy storage.

This surge in demand puts pressure on domestic manufacturing capacity to stabilise quickly. Delays in achieving steady-state production increase reliance on imports, exposing manufacturers to currency volatility and global supply disruptions. In that context, budgetary support that helps plants ramp up faster can have a meaningful impact on long-term competitiveness.

Access to long-term, affordable capital is a critical part of this equation. Battery manufacturing requires large upfront investments and has longer payback periods compared to conventional auto components. Financing mechanisms with longer tenures, lower costs, and predictable terms can significantly reduce execution risk and encourage capacity expansion.

Supply chain resilience and strategic materials

The push for electric mobility has also brought supply chain security into sharper focus. Certain critical materials, particularly rare earth elements used in high-performance traction motors, remain heavily import-dependent. China continues to dominate global supply, creating strategic vulnerabilities.

The government’s initiative to develop a domestic rare earth permanent magnet ecosystem has been welcomed by the industry. What manufacturers are now looking for is clarity on timelines and sustained policy support to translate intent into capacity. Reliable access to critical materials is essential not just for EVs, but for the broader automotive and manufacturing ecosystem.

Approvals, infrastructure, and skills

Manufacturing timelines are often influenced as much by non-technical factors as by technology itself. Delays in land acquisition, power connectivity, environmental clearances, and product testing can significantly slow projects and increase costs. Streamlining approvals and strengthening industrial infrastructure can meaningfully reduce time-to-production.

Workforce readiness is another area that deserves attention. Advanced battery and EV manufacturing require specialised skills that are not always readily available. Process engineers, quality specialists, and safety professionals play a critical role in stabilising operations. Industry-aligned skilling programmes can improve productivity and reduce early-stage inefficiencies.

A realistic budget outlook

From the perspective of the auto and EV manufacturing sector, Budget 2026 is not expected to deliver sweeping changes. Nor is that what the industry is asking for. The need of the hour is continuity, predictability, and incremental alignment that reduces execution risk.

Measures that support capital access, harmonise tax structures, strengthen supply chains, and improve infrastructure readiness can help convert strong adoption numbers into durable manufacturing capability. If policy and execution move in sync, India’s EV transition can be built on stable factories and resilient supply chains, rather than short-term momentum alone.

That shift will define the sector’s trajectory in the years ahead. 

Pratik Kamdar is the Co-founder & CEO of Neuron Energy. Views expressed are the authors’ personal.