Charging Ahead: Aligning India's EV Growth with Free Trade Agreements

India’s electric vehicle (EV) sector is at an inflection point. As the country pushes aggressively toward achieving its climate goals under its Nationally Determined Contributions (NDCs) and net-zero targets by 2070, the government is recalibrating its EV policies — and increasingly aligning them with its approach to Free Trade Agreements (FTAs). This intersection is shaping a new narrative where domestic policy, international trade, and climate action converge.

The Evolving Domestic EV Policy Landscape

India’s EV policies have evolved significantly over the past few years. The FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme, has provided critical demand-side incentives. Production-linked incentive (PLI) schemes for advanced chemistry cell batteries (to encourage local manufacturing of advanced chemistry cells) and automotive components (to promote domestic manufacturing) have targeted the supply side. States have introduced dedicated EV policies to incentivise adoption of EVs through a bouquet of fiscal and nonfiscal measures.

In March 2024, India introduced the Electric Mobility Promotion Scheme (EMPS), now subsumed under the PM E-Drive scheme, to continue demand support beyond FAME-II and launched multiple tendering initiatives for EV charging infrastructure. Policies are now increasingly focused not just on boosting EV adoption, but also on building a competitive and resilient supply chain for EV components like batteries, power electronics, and motors.

Around the same time, Government of India launched the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI) to boost domestic EV manufacturing by attracting global investments and promoting India as a global hub for EV manufacturing. Under SPMEPCI, foreign companies can import up to 40,000 EVs over five years at a reduced 15% duty.

This is contingent on a minimum investment of USD 500 million and compliance with phased domestic value addition targets. This dual approach encourages foreign investment while boosting domestic production capabilities.

Free Trade Agreements: A Catalyst for EV Growth

While global automakers are weighing their options, a new tariff strategy is also emerging. India is exploring EV related concessions and may also modify SPMEPC, pursuant to bilateral trade agreement (BTA) or free trade agreements (FTAs) currently under negotiations. India is currently negotiating trade agreements with the UK, the EU, and USA, where issues such as lowering car import duties, reduced investment requirements, thresholds relating to number of imported EVs, or easing localisation requirements are at play. 

Challenges and Opportunities

While India’s EV policy-trade agreement alignment creates huge opportunities, some challenges will need to be addressed:
 

• Balancing Protection and Competition: Protecting domestic EV players while opening the market through trade agreements requires careful calibration. Domestic companies, which may lack the scale and technological capabilities to compete with global giants, could be placed at a disadvantage. To mitigate this, the government must offer targeted support to local firms through measures such as subsidies, R&D grants, or capacity-building programs. The aim should be to establish a level playing field that enables both domestic and international players to succeed.
   
• Supply Chain Security: Heavy reliance on imports of critical minerals and battery components, like cells, batteries and semi-conductors, poses strategic vulnerabilities and it may take time for India to develop the necessary infrastructure and expertise to produce these components locally. India is mitigating this through FTAs with mineral-rich countries and domestic initiatives like the KABIL partnerships.
   
• Technology Gaps: Accessing global technology via FTAs is crucial, but India must also focus on developing indigenous R&D capabilities to reduce reliance on imports and create resilient and self- sufficient EV ecosystem.

India’s evolving EV policies are no longer insular. They are increasingly designed with an eye on global competitiveness, climate commitments, and strategic trade partnerships. Aligning EV policies with trade agreements enables India to not only accelerate EV adoption but also secure its place in the global clean mobility value chain. As trade agreements become more green-tech-focused, India's pragmatic and dynamic approach could be the key to balancing domestic growth with international cooperation.

Vishnu P. Sudarsan & Sugandha Somani Gopal are Parterns at JSA. Views expressed are the author's own.