As Finance Minister Nirmala Sitharaman prepares to present Union Budget 2026-27 on February 1, India’s automotive industry stands at a crossroads, anticipating policy clarity and fiscal support that could shape its trajectory for years to come. With electric mobility gaining momentum, manufacturing competitiveness under pressure, and global trade integration becoming crucial, automakers and industry stakeholders have outlined clear expectations focusing on EV incentives, duty reforms, infrastructure development, and sustained support for domestic production.
The Green Mobility Push: PLI Reinforcement and EV Ecosystem
EV Super App and Digital Integration
According to an EY India report, Union Budget 2026 is expected to strengthen green mobility solutions with innovative proposals like a unified EV super app. This digital platform would streamline the electric vehicle ecosystem by offering real-time slot booking for charging stations, integrated payment systems, charger availability updates, and progress dashboards to track nationwide deployment under the PM E-Drive scheme.
Such digital integration aims to simplify EV ownership, improve charging convenience, and accelerate India’s transition toward sustainable mobility by addressing one of the biggest pain points for EV users—the fragmented charging infrastructure experience.
Battery Gigafactories and Charging Infrastructure
There is growing anticipation that Budget 2026-27 will introduce fresh incentives for domestic battery gigafactories, alongside measures to strengthen India’s charging infrastructure through tools such as viability gap funding and tax concessions. The budget is also expected to reaffirm commitment to ensuring adequate funding, smoother disbursement, and better alignment between central and state incentives.
The PM E-DRIVE Scheme has already made significant progress, having incentivized over 24.79 lakh electric two-wheelers (e2Ws) and 3.15 lakh electric three-wheelers (e3Ws) as of July 2025. An allocation of Rs 2,000 crore has been made under the scheme for installation of 72,300 EV Public Charging Stations (EVPCS).
PLI Scheme Challenges and Needed Reforms
While the Production Linked Incentive schemes have attracted significant private investment since their 2021 introduction, implementation challenges persist. Deloitte India Partner Sheena Sareen noted that the current PLI scheme for automobiles has seen limited success, with only five or six companies qualifying out of over 200 applicants.
Major Challenges:
- Domestic Value Addition Requirements: Nearly 50 percent local value addition is required, which proves difficult due to lack of local production of key components like batteries and rare earth magnets
- High Investment Thresholds: ₹2,000 crore investment requirement for four-wheelers over five years deters smaller firms and startups
- Inverted Duty Structure: Accumulation of input tax credit that cannot be fully utilized effectively blocks working capital for manufacturers
- GST on Charging Services: The 18 percent GST on charging services is seen as counterproductive
Industry experts suggest relaxing PLI norms—as has been done in other sectors—to widen participation, along with tax rationalization to improve competitiveness and accelerate green mobility adoption.
Duty Reforms for Global Automakers
The new budget is expected to bring duty reforms for global automakers, particularly targeting the fast-growing electric vehicle segment. Rationalization of import duties, paired with well-calibrated incentives, could encourage multinational manufacturers to invest more deeply in India’s sustainable mobility ecosystem.
Such measures would not only attract foreign capital but also accelerate EV adoption, positioning India as a competitive hub for clean automotive technologies and future-ready manufacturing. Global players including VinFast, Tesla, and Korean and Japanese battery companies are already exploring India for large-scale manufacturing opportunities.
Addressing the Inverted Duty Structure
Piyush Arora, MD and CEO of Skoda Auto Volkswagen India, has emphasized that local production must receive sustained support in the upcoming Union Budget. He highlighted that rationalizing the inverted duty structure for EVs will be crucial to strengthening domestic manufacturing and boosting competitiveness in the global market.
The inverted duty structure—where finished goods attract lower taxes than raw materials or components—leads to accumulation of input tax credit that cannot be fully utilized, effectively blocking working capital for manufacturers. The budget could expand the scope of Section 54(6) of the CGST Act to allow for provisional refunds in inverted duty structure cases.
Infrastructure Push and Tax Rationalization
Roads and Charging Networks
Balbir Singh Dhillon, Brand Director at Audi India, underlined the importance of continued emphasis on infrastructure development, particularly in roads and high-speed charging networks, to accelerate growth in the luxury car segment. He added that rationalization of taxes and duties, coupled with a stable long-term policy framework and steady foreign exchange conditions, will be critical for sustaining momentum.
Dhillon expressed optimism that the forthcoming Union Budget will act as a catalyst for boosting overall consumption, including luxury automobiles.
Reducing GST on Charging Services
Industry stakeholders have specifically called for reducing GST on public charging services to 5 percent from the current 18 percent, aligning it with the rate applicable for EVs themselves. This rationalization would remove a major cost barrier to EV adoption and encourage private sector participation in the charging ecosystem.
Support for Local Manufacturing
Arora emphasized that increased allocation for road and transport infrastructure, along with a renewed push for customs reforms, would be timely steps to enhance trade efficiency and unlock India’s economic potential. A renewed push on the next phase of customs reforms, as anticipated in recent media reports, would further improve trade efficiency and unlock India’s full economic potential.
Sustained Budget Support
Incentive disbursements for the PLI Auto scheme are beginning to gather pace, with Rs 322 crore released for fiscal 2024 and nearly Rs 2,000 crore for fiscal 2025. Industry players emphasize that PLI reforms and sustained budget support could speed up EV adoption, boost domestic manufacturing, and advance India’s green mobility goals.
The ₹18,100-crore PLI Scheme for Advanced Chemistry Cell (ACC) battery manufacturing is building India’s foundational battery ecosystem by incentivizing large-scale domestic cell manufacturing. The scheme aims to establish 50 GWh of Giga-scale ACC capacity, with 40 GWh already allocated to three beneficiaries—Reliance, Ola Electric, and Rajesh Exports.
The Broader Context: India’s EV Manufacturing Ecosystem
Leading OEMs such as Tata Motors, Mahindra, TVS, Ather Energy, Ola Electric, Bajaj Auto, and PMI continue to expand capacity, supported by new investments across R&D, gigafactories, and dedicated EV platforms. Cell and battery investments have become the fastest-growing segment, driven by the ACC PLI scheme, with Reliance New Energy, Ola Electric, Amara Raja, Exide Energy, and international players developing gigawatt-scale cell plants.
Multiple greenfield and brownfield facilities are being set up across Tamil Nadu, Karnataka, Gujarat, and Maharashtra—supported by state incentives and PLI-linked commitments. The entry of VinFast and new investments by MG Motor-JSW and Hyundai-Kia underscore India’s growing prominence as a global EV production base.
Conclusion: A Pivotal Budget for Automotive Future
As Union Budget 2026-27 approaches, the automotive industry’s wishlist reflects a sector in transformation—moving from traditional internal combustion engines toward electric mobility, from import dependence toward domestic manufacturing, and from fragmented policies toward integrated ecosystems. Whether Finance Minister Sitharaman’s announcements on February 1 will meet these expectations remains to be seen, but the stakes for India’s automotive competitiveness and green mobility transition have never been higher.