New Delhi | Union Budget 2026–27: India’s electric mobility journey entered a decisive new phase on February 1, 2026, as the Union Budget 2026–27 signalled a calibrated shift from demand-led EV subsidies to long-term supply-chain strengthening and domestic manufacturing. While the government reaffirmed its commitment to accelerating EV adoption through continued incentives under the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-Drive) scheme, the sharper focus this year is on batteries, critical minerals, electronics, and public transport electrification.
- PM E-Drive: Sustaining the EV Adoption Momentum
- Budget Numbers Tell the Story
- A Strategic Pivot to Manufacturing and Supply Chains
- Rare Earth Corridors and Mineral Security
- Public Transport Electrification Gets Structural Support
- Boost for MSMEs, Electronics, and Semiconductors
- Green Fuels and Fiscal Incentives Continue
- Investment Outlook: From Subsidies to Systems
- All India EV Community
Presenting the Budget, Finance Minister Nirmala Sitharaman announced an allocation of ₹1,500 crore for PM E-Drive in FY27, underlining the Centre’s intent to balance near-term affordability with long-term industrial resilience. The move comes amid rising EV penetration, intensifying global competition for battery materials, and India’s ambition to emerge as a key manufacturing hub in the global clean mobility value chain.
PM E-Drive: Sustaining the EV Adoption Momentum
PM E-Drive, which replaced the FAME India scheme on October 1, 2024, carries a total outlay of ₹10,900 crore and will run until March 2028. The scheme has been designed as a more targeted and diversified intervention, spreading incentives across vehicle segments and charging infrastructure.
The allocation structure reflects this broadened scope: ₹3,679 crore for electric two- and three-wheelers, ₹4,391 crore for electric buses, ₹500 crore each for electric trucks and ambulances, and ₹2,000 crore for EV charging stations. By supporting both mass-market vehicles and commercial fleets, the government aims to decarbonise urban mobility while lowering logistics and public transport emissions.
As of December 30, 2025, incentives under the scheme have already supported 21.24 lakh EVs nationwide. Targets for L5 electric three-wheelers have been achieved, while incentives have benefitted over 18.40 lakh electric two-wheelers. However, while PM E-Drive runs till 2028, incentives for e-two- and three-wheelers are scheduled to end on March 31, 2026, marking a gradual tapering of direct consumer subsidies in these mature segments.
Budget Numbers Tell the Story
Budget documents reveal a clear rebalancing of EV spending priorities. While FAME India has effectively been phased out, PM E-Drive has taken centre stage, albeit with moderated annual allocations as the ecosystem matures.
| Scheme | FY25 Actual (₹ cr) | FY26 Budget (₹ cr) | FY26 Revised (₹ cr) | FY27 Budget (₹ cr) |
|---|---|---|---|---|
| FAME India | 1,113.95 | — | 1,181.26 | — |
| PM E-Drive | 993.05 | 4,000.00 | 1,300.00 | 1,500.00 |
| PM e-Bus Sewa PSM | 4.92 | 510 | 510 | 12 |
In contrast, the PM e-Bus Sewa PSM scheme, which ensures payment security for private operators supplying electric buses to state transport undertakings, has seen a smaller but steady budgetary presence reflecting its role as a risk-mitigation tool rather than a direct subsidy programme.
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A Strategic Pivot to Manufacturing and Supply Chains
The most consequential shift in Union Budget 2026–27 lies in its emphasis on EV manufacturing and supply-chain security. Recognising that batteries account for nearly 35–40% of an electric vehicle’s cost, the government has moved decisively to reduce input costs and dependence on imports.
The Budget exempts Basic Customs Duty (BCD) on 35 additional capital goods used in lithium-ion cell manufacturing and battery energy storage systems. In a further boost, critical minerals such as lithium, cobalt, and rare earth elements have been granted full customs duty exemptions, directly lowering the cost of domestic battery production.
This approach reflects a long-term affordability strategy: instead of subsidising the end product indefinitely, the government is targeting the cost structure at its source.
Rare Earth Corridors and Mineral Security
To address geopolitical and supply risks in critical minerals, the Budget announced the creation of Rare Earth Corridors in states including Odisha, Tamil Nadu, Kerala, and Andhra Pradesh. These corridors are envisioned as integrated zones spanning mining, processing, and downstream manufacturing.
With global EV supply chains increasingly vulnerable to trade disruptions and concentration risks, India’s push to localise rare earth processing is seen as a strategic hedge. Over time, these corridors could support not just EV batteries but also motors, power electronics, and renewable energy systems.
Public Transport Electrification Gets Structural Support
Electric buses remain a cornerstone of India’s urban decarbonisation strategy, and the Budget reinforces this priority. Beyond direct subsidies under PM E-Drive, the PM e-Bus Sewa PSM scheme provides payment security to operators, reducing financial risk and encouraging private participation.
Charging infrastructure is being integrated into the PM E-Drive platform, with guidelines already notified, though large-scale disbursals are still awaited. This coordinated approach is expected to accelerate e-bus deployment across major cities, especially as state transport undertakings grapple with funding constraints.
Boost for MSMEs, Electronics, and Semiconductors
The Budget extends its EV focus to the broader automotive and electronics ecosystem. A ₹10,000 crore SME Growth Fund has been announced to support MSMEs in auto components and allied sectors, many of which are critical suppliers to EV manufacturers.
The Electronics Components Scheme has been expanded to ₹40,000 crore, while Semiconductor Mission 2.0 aims to strengthen domestic chip manufacturing an area vital for EV power electronics, battery management systems, and advanced driver assistance technologies.
Green Fuels and Fiscal Incentives Continue
EVs continue to benefit from a concessional 5% GST, significantly lower than petrol and diesel vehicles. Income-tax deductions on interest paid on EV loans under Section 80EEB remain in place, offering an additional nudge to buyers.
In a parallel push for cleaner fuels, the Budget excludes excise duty on the biogas component in blended CNG and PNG, providing relief to commercial fleets and supporting emission reductions beyond electrification alone.
Investment Outlook: From Subsidies to Systems
Union Budget 2026–27 marks a clear inflection point in India’s EV policy. The era of heavy, open-ended consumer subsidies is giving way to system-level interventions focused on manufacturing depth, mineral security, and public transport electrification.
For investors and industry players, opportunities are shifting towards battery materials, power electronics, charging infrastructure, e-bus supply chains, and auto component exporters. As India aligns policy, capital, and industrial strategy, the Budget positions electric mobility not just as a climate solution, but as a cornerstone of the country’s next manufacturing wave.
In doing so, the government has signalled that the future of India’s EV story will be built less on short-term incentives and more on resilient, globally competitive systems.
