Future of Electric Vehicles in India: Market Growth & Government Policies

The recent news of Tesla coming to India has opened up new prospects for the Indian EV industry and its future. The update signals the investors’ confidence in the Indian EV market. With a stable market, investment opportunities, and a functioning democracy, the EV industry may act as an Investors’ heaven in the upcoming times. One of the key factors behind this growing market is the recent change in government policies and incentives, which has enabled the introduction of various global electric vehicles in India. 

 But what does the future of the Indian EV industry look like in terms of Market Growth, Government Policies, and upcoming EVs? Let’s find out. 

The Indian EV market 

Destination shouting men pulling to make you sit in their e-rickshaw, an overwhelming crowd of E-buses crossing narrow and wider streets indiscriminately, and e-bike riding riders navigating through the traffic to deliver your hot food, the scenario of Indian roads remains unchanged irrespective of any city (mostly). From peddling rickshaws, smoke emitting bikes and buses behind which lies every biker's nightmare– the hot exhaust, how have we ended up here? The Indian market of EVs has grown into its teenage years in front of our eyes. As you know, this rebellious age comes with different and unique kinds of challenges, but we have to agree the future seems quite exciting. 

Currently, as per 2024 data, the Indian EV market is valued at US$ 5.22 billion, which is anticipated to increase by a CAGR of 28.52% to attain US$ 18.319 billion by 2029, as per ibef.org. In terms of value, according to Nitin Gadkari, minister of road transport and highways, the Indian EV market is expected to reach ₹20 lakh crore by 2030 and could generate approximately five crore jobs in the EV ecosystem as a whole. 

Earlier last year, India surpassed Japan to become the third-largest automobile market in the world. It is only a matter of time before this market shifts towards greener options. To support this argument, we can observe the constant increase in India's EV penetration rate. Although the EV penetration rate remains low, the percentage of EVs in India's total automobile market rose from 6.8% to almost 8% in the previous year.

The total number of EV sales in 2024 increased by 24% to about 2 million units, up from about 1.6 million in 2023, suggesting a surge in consumer demand.

Government Policies

Once realised the true potential of the EV industry, the government of India started to push the adoption of EVs and electric transport options. The intent to switch over to cleaner power is well reflected in the fact that cities like Delhi, Bengaluru, Thiruvananthapuram and many more are actively adopting to electric buses from conventional black smoke emitting rides.

In addition, the central government has rolled out the following policies to boost adoption–

Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME)- 

In order to encourage the use of electric and hybrid cars (xEVs) in India, the Ministry of Heavy Industries (MHI) developed the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme in 2015. With a budget expenditure of Rs. 895 crore, the scheme's Phase-I concluded on March 31, 2019, setting the foundation for India's future EV policy. The program provided a boost to the industry, allowing firms such as Ola, Ather, TVS, and Hero to establish a significant market presence.

Production Links Incentive (PLI) scheme:

The Production Linked Incentive Scheme for Automobile and Auto Component Industry (PLI-Auto), launched in 2021, has a budgetary outlay of Rs. 25,938 crores over five years, aiming to boost manufacturing capabilities for Advanced Automotive Technology products. Complementing this, the PLI scheme for manufacturing Advanced Chemistry Cells (ACC), approved in the same year with an outlay of Rs. 18,100 crores, envisions establishing a cumulative battery manufacturing capacity of 50 GWh. Additionally, the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), notified recently in 2024, facilitates the import of Completely Built-in Units at a reduced customs duty of 15% over five years, contingent upon setting up local manufacturing facilities.

In addition, the scheme’s application in MNRE incentivises domestic production of high-efficiency solar PV modules to ensure a sustainable renewable energy base for powering widespread EV charging networks. 

According to a PIB press release, these measures will reduce import dependency, enhance local supply chains, and drive technology transfer and job creation. Collectively, these initiatives strengthen current EV manufacturing capabilities and lay a strategic foundation for future advancements, positioning India as a formidable player in the global green mobility transition.

PM E-Drive 

The PM E-DRIVE Scheme, launched by the Government of India on October 1, 2024, aims to make electric vehicles (EVs) more popular and affordable while building a strong charging network across the country. The scheme will run until March 31, 2026, with a total budget of Rs 10,900 crore. It supports various types of EVs like electric two-wheelers (e-2W), three-wheelers (e-3W), e-buses, e-ambulances, and e-trucks.

To encourage people to buy EVs, the scheme offers subsidies based on battery capacity. For e-2Ws, buyers will get Rs 5,000 per kilowatt-hour (kWh) in the first year (up to Rs 10,000 total), and this will reduce to Rs 2,500 per kWh in the second year (up to Rs 5,000). E-rickshaws and cargo three-wheelers will also receive incentives, with benefits halved in the second year.

The government will also invest in setting up 72,300 fast charging stations in cities and highways. To make the subsidy process simple, buyers will get an Aadhaar-linked e-voucher at the time of purchase. This signed e-voucher will be used for claiming the incentive. Through this scheme, India hopes to promote cleaner transportation and reduce pollution.

Clean Tech manufacturing support programme

The Clean Tech manufacturing support programme, as outlined in the recent announcement by the Ministry of Finance, seeks to exempt customs duty on 35 additional capital goods essential for EV battery production. The Finance Minister also announced the removal of Basic Customs Duty (BCD) on key minerals critical to EV battery manufacturing.

The program, which is part of India’s National Manufacturing Mission, aims to strengthen domestic value addition and establish a robust ecosystem for advanced clean technologies such as solar PV cells, EV batteries, and associated components. 

This initiative is designed to accelerate innovation, boost competitiveness, and create substantial employment opportunities across small, medium, and large-scale industries, while aligning with the broader “Make in India” vision. To make a deductive assumption, one can look for similar global programs—most notably, the U.S. initiatives under the Inflation Reduction Act (IRA). The IRA has successfully spurred domestic EV battery production and reduced supply chain vulnerabilities. 

Both the Inflation Reduction Act (IRA) in the U.S. and India’s Clean Tech manufacturing support program are built on the principle of using targeted fiscal incentives and regulatory certainty to attract domestic clean energy manufacturing. For example, the IRA embeds long-term tax credits (like the Investment Tax Credit and Production Tax Credit) and bonus provisions for meeting prevailing wage and domestic content requirements, which have already spurred forecasts of up to $3 trillion in private investments and generated over 170,000 jobs in clean energy projects across 44 states. Similarly, India’s approach is to overcome a heavy reliance on imports (with current domestic shares as low as 20% for solar components and 15% for batteries) by encouraging local production of high-efficiency solar PV modules, EV batteries, electrolyzers, and more.

What do we Observe?

Empirically, the first tranche of India’s PLI scheme for high-efficiency solar modules awarded capacity for 8,737 MW, and the second tranche aims to add another 39,600 MW. If these targets are met, India’s manufacturing base could shift dramatically, enabling self-sufficiency in solar and over 90% domestic production for EV batteries by 2030. Such a transformation can reduce the import burden of India and can have a similar experience as the U.S.A.

Looking ahead, provided India maintains policy momentum and couples these incentives with investments in skills and R&D, we can predict that the country’s clean tech sector will experience a manufacturing renaissance. This could result in hundreds of thousands of new jobs, a boost in domestic production capacities, and enhanced export competitiveness in global markets, ultimately positioning India in the list of important players in the global clean energy supply chain.