Spate of concessions fine but new EV policy leaves many questions unanswered

The Centre on Monday (June 2) announced the detailed guidelines for the new Electric Vehicles policy (EV policy) which was announced in a skeletal form on March 15, 2025. These guidelines give an idea of how the government is planning to go about implementing this EV policy. These guidelines also pose some major unanswered questions.

Before addressing these questions, let us briefly summarise the EV policy hitherto followed and the changes in the new policy. Policy concessions to the EV sector are nothing new and many concessions existed before June 2.

Earlier concessions to EVs

Before the new spate of concessions to EVs announced on June 2, the earlier concessions to the EVs were grouped under the FAME (Faster Adoption and Manufacturing of Electric and Hybrid Vehicles in India) scheme adopted in the budget of 2015–16 and which came into effect in 2019.

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Under the FAME scheme, concessions were mainly decided based on the battery capacity installed in the vehicle. For every kWh of battery capacity, the subsidy was Rs 10,000. If an EV car had a battery capacity of 25 kWh, then the buyer (or in some cases the manufacturer) used to receive a subsidy of Rs 2,50,000. The subsidy amount for two-wheelers was Rs 15,000 per kWh. In both cases, the subsidy cap was 40% of the total cost of the vehicle. In addition, the buyers could also get a tax rebate of up to Rs 1.5 lakh under Section 80EEB of the Income Tax Act.

Besides these all-India subsidies from the Centre, different states were also offering various additional incentives, including road-tax waivers, registration fee waivers, and toll waivers for electric vehicles.

While these old concessions would continue even now, new additional concessions have been introduced on June 2.

Concessional import duty

The main highlight of the new policy guidelines was the concessional import duty of 15% on the import of components for the domestic manufacture of EVs. The import duty was 70% earlier. Companies, however, can get this concession only for up to 8000 vehicles.

Will the companies transfer these benefits to the buyers? The policy stipulates no cap on the price at which a subsidised EV could be sold and hence the subsidy is not targeted primarily at the buyers but the manufacturers.

More importantly, a key omission in the policy is that presently in the case of two- and three-wheelers the imported components account for 5–10% of all the components used and in the case of passenger vehicles among four-wheelers the imported components account for 20%. The government has set no timeline for progressively increasing the domestically manufactured components to 90% or more.

The new policy also introduces investment-linked incentives for manufacturers who set up production facilities in India. Here the policy extends similar treatment to domestic and foreign investors alike. There are no preferential concessions for domestic manufacturers.

Favouring the biggies

The new EV policy is clearly designed to favour big corporate houses and hence would pave the way for greater monopolisation in the auto sector.

The policy stipulates that the investor—domestic or foreign—should invest at least Rs 4,150 crore within a three-year timeframe to qualify for these concessions. Additionally, the investors should have minimum global revenues of Rs 10,000 crore and global fixed assets of Rs 3,000 crore. Such preconditions would exclude many medium-sector enterprises from taking to EV production in India.

Secondly, the policy doesn’t favour preference for local suppliers. Allowing up to 20% of the components to be imported without any time limit to progressively reduce the share of imported components is a big disincentive to local suppliers. These apart there are some other major glitches in the new EV policy.

Major negative aspects

One of the most significant concerns related to the transition to electric mobility in India is the insufficient charging infrastructure. Many argue that without a robust network of charging stations, the adoption of EVs will be hindered, making it difficult for consumers to transition from traditional fossil-fuel vehicles.

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Charging at home would be sufficient for short-distance commuting. But for long-distance travel like inter-city journeys, the vehicle needs more charging points en route. Ordinary EVs can travel up to a range of 100–300 km after one-time charging but high-end models like Tesla or Audi can travel up to 400 km after charging once.

Ordinary chargers can take up to 8 hours to fully charge and on average commercial charging points can charge Rs 40 for it. Advanced chargers can take half as much time but can cost twice as much. Very advanced super-fast chargers can charge in one hour and can cost Rs 100. Either the long time taken for charging or the higher cost of quick advanced charging is a disincentive for EVs in general. The investment required for installing higher-end charging points is also quite high.

High cost of EVs

The initial upfront cost of an electric vehicle is quite higher compared to a conventional fossil-fuel vehicle. This would be a deterrence for middle-class buyers who will have to pay higher EMI for longer periods.

Prof Murugan, teaching at Vellore Institute of Technology, feels, “Electric vehicle by itself doesn’t mean sustainability. We need to make a total life cycle assessment. Since a substantial part of India’s power generation is from coal, oil and gas even electric vehicles do not contribute to reducing carbon footprint substantially. Lithium batteries and the carbon footprint associated with lithium mining also needs to be factored in.”

The sourcing of materials used for EV batteries, particularly cobalt, is linked to serious ethical issues, including child labor and unsafe working conditions in mining operations. Green activists highlight this negative side of EVs.

At first sight, one wonders why this new EV policy offers such a generous space for large imports. Upon closer scrutiny, we get to know that many components are not manufactured in India and they can be imported only from China. Against the backdrop of a trade war with the US, last month China made a startling announcement that they would ban the export of heavy rare earth magnets from China, a key component in EVs. The entire Indian EV industry would grind to a halt if the export of heavy rare earth magnets is banned by China, which however, has not carried out its threat as yet.

Subsidy burden on govt

Many international auto majors have expressed their intent to manufacture EVs in India but, ironically enough, their entire supply chain is in China. The dependence of not only India but also the global EV industry on China is very high.

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The greater the increase in the number of EVs, the more will be the subsidy burden on the government. For instance, depending upon its battery capacity, a four-wheeler EV is entitled to a subsidy of up to Rs 2 lakh. If the EV penetration reaches a stage where 1 million EVs are sold per year, the annual subsidy burden on EVs would be Rs 20,000 crore. This will work out as fiscal discrimination against the poor.

Finally, in the case of telecom, we have seen how the government offered attractive concessions to foreign companies investing in iPhone manufacture in India under the Production-Linked Incentives (PLI) scheme and how foreign companies just assembled imported kits and exported iPhones and made handsome profits. Even people like Raghuram Rajan came out strongly against this practice. The credit for the Indian government’s proud claims of exporting iPhones to America goes entirely to an American MNC Apple or at best to the Chinese Foxconn supplying to it and this is how “indigenisation” works in reality.

Will a similar story repeat in the case of EV manufacturing also? Will foreign investors make much more gains out of this EV policy than domestic manufacturers? There are no safeguards in the policy to prevent such an eventuality.

Jolt to traditional units

Secondly, many fossil fuel-based traditional automobile units and thousands of their ancillary units would take a hit by the proposed total transition to electric mobility by 2030.

Muralidharan, who owns ARV Auto Components located in Maraimalai Nagar, Chennai, described to The Federal the painful transition his firm is confronting: “Presently, we are manufacturing radiator cooling systems and the big firms, we are supplying to, are switching over to EVs and hence we are forced to switch over to battery cooling system. All our existing machinery has become redundant and we are to invest up to Rs 3 crore to manufacture battery cooling system to survive in the business. We do not have the wherewithal for such huge funds. The government should constitute a fund and extend subsidised credit for units like ours and also arrange technical assistance where possible. Unfortunately, the government is doing nothing now.”

Kumaraswamy, a prominent labour leader in Chennai, told The Federal: “The Centre should consult state governments like that of Tamil Nadu, Maharashtra or Gujarat or Haryana where EV production is concentrated and put in place a rehabilitation scheme to mitigate the negative fallout on both small-scale employers and workers and make this transition least painful.”

Jawahar, an industrial innovation consultant, feels that the government should come up with big investments to facilitate renewable energy for charging stations so that they don’t use power generated from coal-based power plants and thereby increase the carbon footprint.

EV penetration in India

EVs account for 2.39% of all four-wheelers, 6.6% of all two-wheelers and 7% of all buses. Recently, some media reports indicated that the initial enthusiasm for EVs has somewhat waned.

Globally too, a Gallup poll and an AAA survey showed that the initial interest in EVs was dwindling. Now, there are reports of unsold stocks of EVs piling up and companies have started offering attractive promotional incentives to buyers. The Indian government has announced this policy in the backdrop of such stagnation in the expansion of electric vehicles.

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Coinciding with the announcement of the new policy, Mercedes, Kia and Hyundai have expressed their readiness to invest in EV manufacture in India but Elon Musk who was personally invited by Prime Minister Narendra Modi to start Tesla manufacture in India is still circumspect about the EV market prospects in India, especially for higher end EVs like Tesla which cost almost double the ordinary EVs.

Whether this new policy would enable overcoming this stagnation and speed up the achievement of its green goal in a big way remains to be seen.