Beyond subsidies: How India's EV sector can achieve long-term success
Imagine a toddler learning to ride a bike. For a while, training wheels provide necessary support, preventing tumbles and building confidence. But eventually, those wheels must come off to achieve true balance and speed. India's EV market, long bolstered by subsidies, now faces a similar moment of truth.
The launch of the Faster Adoption and Manufacturing of Hybrid and
Electric Vehicles
(FAME) scheme a decade ago marked a pivotal moment in India's journey towards electrifying transportation. The government's demand side subsidies played a crucial role in propelling EV sales, with penetration rising from below 1% in 2015 to 7.5% in 2024. The ambitious target of achieving 30% EV penetration by 2030 seems within reach, with projections of 2 million EV sales by FY 2025. However, as this milestone nears, it's worth questioning whether continuing subsidies is the best way forward.
The hidden costs of subsidies: Distorting the market and stifling innovation
While subsidies have undeniably provided the EV sector with a vital initial boost, long-term dependence on them carries significant hidden costs. Over time, subsidies distort the market by undermining competition and stifling innovation. When manufacturers know their products are propped up by government support rather than market forces, the incentive to innovate, reduce costs, or improve efficiency diminishes. The goal should not be to make electric vehicles more affordable through perpetual financial aid, but through technological breakthroughs that drive innovation and lower costs sustainably.
The real risk is the creation of a "subsidy trap". Over time, both consumers and businesses grow accustomed to these financial incentives, making it harder to remove subsidies when needed. Moreover, this reliance on subsidies breeds complacency, slowing the growth of the EV sector and limiting its ability to adapt to changing market demands. This dependency ultimately hinders the sector's potential to compete on its own merits.
The government's stance: EVs are ready to stand alone
The Indian government itself recognises that this dependency is unsustainable. As recently stated by the Minister of Commerce and Industry, Piyush Goyal, the government aims to phase out purchase subsidies after March 2026, urging the industry to become self-sufficient. Though this has raised concerns among stakeholders, it is a necessary shift towards building a sustainable, market-driven EV ecosystem.
The government's position is clear: The EV sector in India is ready to fly without the wings of subsidies. Existing incentives and policies have successfully provided the necessary initial momentum. The next phase of growth must be driven by the sector itself, aligning with a global trend where many advanced economies are reducing subsidies as their EV industries mature.
Beyond subsidies: A smarter, sustainable approach to EV Promotion
So, what is the alternative? The solution lies in creating a level playing field where EVs can compete fairly with traditional internal combustion engine (ICE) vehicles.
Firstly, instead of direct purchase subsidies, the government should focus on incentivizing domestic manufacturing of EVs, batteries, and charging infrastructure. The
PM E-Drive Yojna
is a great step to accelerate
EV adoption
and build nationwide charging infrastructure. The PLI scheme further strengthens the sector and boosts domestic manufacturing. These initiatives would make Indian EVs more competitive globally and align with the 'Make in India' campaign, positioning India as a leader in EV manufacturing.
Secondly, the government should promote innovation through tax incentives for research and development (R&D), encouraging new technologies and improving safety standards. This would transition the focus from financial aid to building a sustainable, self-reliant ecosystem that fosters long-term growth.
Thirdly, to make EVs more affordable for Indian buyers, the government must focus on bringing parity among various competing technologies. Battery as a service (Baas) is one such solution. By separating the battery from the vehicle - which accounts for 40-50% of an EV's total cost— battery swapping can significantly lower upfront costs of EVs. Additionally, the process of battery swapping cuts downtime by enabling quick replacement of depleted batteries with fully charged ones in under five minutes, making it beneficial for commercial vehicles that cannot afford long charging times.
However, despite its clear benefits, battery swapping has not received a level playing field compared to traditional fixed charging. EV drivers, many of whom come from lower economic backgrounds, face an 18% GST when replacing batteries, which adds a significant financial burden on them. The high GST on standalone battery purchases—18%—compared to the 5% GST on batteries sold as part of an EV, creates a major discrepancy. This not only burdens users financially, but also hampers the growth of battery swapping services and overall EV adoption.
A bold step toward a sustainable future
Phasing out subsidies is not an abandonment but a necessary step toward a competitive and innovative EV industry. Gradually removing financial support will push manufacturers to innovate, optimize, and compete without subsidies. As India prepares for a subsidy-free future, embracing self-sufficiency will allow the EV sector to grow into a globally competitive force.
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