Electric Vehicle Ecosystem in India 2026: Policy and Growth – Economic Survey 2025-26 Analysis
Electric vehicles represent a technological transformation of the transportation sector with profound implications for energy security, environmental sustainability, and industrial competitiveness. The Economic Survey 2025-26 discusses the broader context of India's transition towards sustainable energy and mobility within which the electric vehicle ecosystem is developing. This article examines EV adoption trends, policy frameworks, infrastructure development, and the road ahead for India's EV revolution.
The Electric Vehicle Opportunity
Electric vehicles offer multiple benefits that make their adoption strategically important for India. First, they reduce dependence on imported crude oil. India imports over 80 per cent of its petroleum requirements, making it vulnerable to global oil price fluctuations and supply disruptions. EVs powered by domestically generated electricity would reduce this dependence.
Second, EVs address urban air pollution, which causes significant health impacts in Indian cities. Tailpipe emissions from conventional vehicles contribute to particulate matter, nitrogen oxides, and other pollutants. EVs produce zero direct emissions, though the overall environmental benefit depends on how the electricity is generated.
Third, EVs offer lower operating costs for consumers. Electricity is cheaper per kilometer than petrol or diesel, and EVs have fewer moving parts requiring maintenance. These savings become more significant as battery costs decline and utilisation increases.
Fourth, the EV transition creates industrial opportunities. Building EV manufacturing capabilities positions India to participate in a global automotive market increasingly shifting towards electrification. Battery manufacturing, in particular, represents a large potential industry.
The Economic Survey 2025-26 discusses the importance of ensuring that India's transition to clean energy does not compromise economic competitiveness. This principle applies to EVs, where policy must balance environmental objectives with affordability and industrial development.
EV Adoption Trends in India
India's EV market has shown strong growth in recent years, albeit from a small base. Total EV sales have increased significantly year-on-year, driven particularly by electric two-wheelers and three-wheelers.
Electric two-wheelers have been the fastest-growing segment. Major manufacturers have launched electric scooters targeting urban commuters. Lower upfront costs compared to electric cars, combined with running cost savings, have made e-scooters attractive. Sales have grown at compound annual growth rates exceeding 100 per cent in recent years.
Electric three-wheelers, used for both passenger and goods transport, have achieved significant penetration in certain markets. Electric rickshaws dominate new three-wheeler registrations in some cities, having achieved cost parity with conventional alternatives.
Electric cars remain a smaller segment given higher costs, but growth is accelerating. Luxury electric cars from international brands cater to affluent buyers, while domestic manufacturers have launched more affordable models. Fleet operators, including cab aggregators, are increasingly adopting electric vehicles where economics favor them.
Electric buses are being deployed in public transport through government procurement programmes. The PM-eBus Sewa scheme supports deployment of electric buses in cities, contributing to fleet electrification of public transport.
Policy Framework: FAME and Beyond
The Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme has been the primary policy instrument supporting EV adoption. FAME provides demand incentives in the form of subsidies for EV purchase, reducing upfront costs for buyers.
FAME-II, launched in 2019, focused subsidies on vehicles with higher localisation, encouraging domestic manufacturing. The scheme provided subsidies for electric two-wheelers, three-wheelers, four-wheelers, and buses, with incentive amounts varying by vehicle category.
Following FAME-II, the Electric Mobility Promotion Scheme (EMPS) was introduced to continue demand support. The scheme specifically targeted electric two-wheelers and three-wheelers that form the bulk of India's vehicle market.
The PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme provides the next phase of support, focusing on both demand incentives and charging infrastructure. This scheme emphasizes electric buses and other categories where government intervention remains necessary to achieve adoption targets.
Beyond central schemes, many states offer additional incentives for EVs. These include exemption from road tax and registration fees, reduced electricity tariffs for charging, and additional purchase subsidies. Maharashtra, Delhi, Gujarat, and Karnataka are among states with comprehensive EV policies.
Production-Linked Incentives for EV Manufacturing
The Economic Survey 2025-26 discusses production-linked incentives as a tool for industrial development. PLI schemes for automobiles and auto components include provisions that incentivise EV manufacturing.
The Advanced Chemistry Cell (ACC) PLI scheme specifically targets battery manufacturing, the most critical and costly EV component. Batteries can account for 30-40 per cent of an EV's cost, making domestic battery production essential for cost reduction and supply chain security.
Several companies have announced battery manufacturing investments under the ACC PLI scheme, though production ramp-up takes time. Developing domestic battery manufacturing capability is essential for India to capture value from the EV transition rather than simply importing batteries.
The automobile PLI scheme provides incentives for manufacturing electric vehicles and their components. This encourages original equipment manufacturers to establish EV production in India and incentivises component suppliers to develop EV-specific capabilities.
Charging Infrastructure Development
Charging infrastructure availability is critical for EV adoption, particularly for four-wheelers with larger batteries requiring more frequent charging away from home. Range anxiety, the fear of running out of charge before reaching a charger, deters potential EV buyers.
India has made progress in deploying public charging stations, though coverage remains uneven. Urban areas, particularly metro cities, have reasonable charging access, while highways and smaller cities lag behind. The economic viability of charging stations depends on utilisation, creating a chicken-and-egg problem where stations need EVs to be viable but EVs need stations to be practical.
Government initiatives support charging infrastructure deployment. Guidelines enable easier installation of home and workplace chargers. Revenue sharing models allow oil marketing companies to install chargers at existing fuel stations. Highway charging corridors are being developed along major routes.
Battery swapping presents an alternative charging model particularly suited to commercial vehicles and two-wheelers. Instead of waiting for a battery to charge, drivers exchange their depleted battery for a fully charged one at a swap station. This reduces charging time to minutes and separates vehicle cost from battery cost, reducing upfront vehicle prices.
The Economic Survey 2025-26's discussion of infrastructure development is relevant here. Just as physical infrastructure enables economic activity, charging infrastructure enables the EV ecosystem.
The Battery Challenge
Batteries are the critical technology enabling electric vehicles, and battery development presents both challenges and opportunities for India. Currently, India lacks domestic lithium and cobalt production, the key materials for lithium-ion batteries. These must be imported, creating supply chain vulnerabilities.
India is pursuing multiple strategies to address battery challenges. First, overseas mineral acquisition through companies like KABIL (Khanij Bidesh India Limited) secures access to lithium and cobalt deposits in countries like Argentina, Chile, and Australia.
Second, alternative battery chemistries that use more abundant materials are being explored. Sodium-ion batteries, for example, use sodium instead of lithium, which is more abundantly available in India. While currently less energy-dense than lithium-ion, these batteries may suit stationary storage and certain vehicle applications.
Third, battery recycling can recover critical materials from used batteries, reducing import dependence over time. As the first generation of EVs reaches end of life, recycling infrastructure will become increasingly important.
Fourth, domestic battery cell manufacturing under the ACC PLI scheme aims to reduce import dependence. While initial production will likely use imported materials, domestic processing and cell manufacturing capture value and build technological capabilities.
Grid Integration and Renewable Energy
The environmental benefit of EVs depends significantly on the electricity source powering them. EVs charged from coal-fired power plants reduce tailpipe emissions but shift emissions to power plants. EVs charged from renewable energy achieve genuine emission reductions.
India's growing renewable energy capacity, discussed in the Economic Survey 2025-26, supports cleaner EV operation. As the share of solar and wind in the electricity mix increases, the carbon footprint of EVs declines correspondingly. The 253.96 GW of renewable energy capacity positions India well for this transition.
EV batteries can also support grid stability through vehicle-to-grid technology. When connected to chargers, EV batteries can supply power back to the grid during peak demand periods, receiving compensation for this service. This makes EVs not just loads on the grid but potentially valuable distributed storage assets.
Smart charging coordinates EV charging with grid conditions. Charging during periods of excess renewable generation (typically mid-day for solar) maximises the renewable content of EV electricity while reducing grid stress during evening peak hours.
Employment and Skills
The EV transition creates new employment while potentially disrupting traditional automotive jobs. EV manufacturing requires different skills than internal combustion engine vehicle production. Fewer mechanical components mean less machining and metal fabrication work but more electrical and electronic assembly.
Battery manufacturing creates new job categories in cell production, pack assembly, and battery management systems. Charging infrastructure deployment and maintenance create service sector employment.
The Economic Survey 2025-26 discusses skills development as essential for India's growth. The EV industry requires training programs that equip workers with relevant skills, from battery technicians to charging station operators to EV mechanics.
Challenges and Road Ahead
Despite progress, India's EV ecosystem faces challenges. High upfront costs compared to conventional vehicles remain a barrier for many buyers. While total cost of ownership may favor EVs over their lifetime, the higher purchase price deters budget-constrained consumers.
Charging infrastructure gaps, particularly outside major cities and on highways, limit EV practicality for long-distance travel and rural users. Building out this infrastructure requires coordinated investment across public and private sectors.
Supply chain development for EV components takes time. From batteries to motors to power electronics, domestic manufacturing capabilities must be built through a combination of investment, technology partnerships, and skills development.
Consumer awareness and acceptance continue to evolve. While early adopters have embraced EVs, mass market adoption requires addressing concerns about range, charging, and reliability through demonstrated performance.
UPSC Relevance: Electric Vehicles
Electric vehicles connect multiple UPSC topics:
- GS-III: Energy security, environment, industrial policy
- Science & Technology: Battery technology, renewable energy
- Environment: Air pollution, climate change
- Current Affairs: Government schemes, industry developments
Practice MCQs on Electric Vehicles - Economic Survey 2025-26
Q1. Which EV segment has shown the fastest growth in India?
(a) Electric cars
(b) Electric two-wheelers
(c) Electric trucks
(d) Electric trains
Answer: (b) Electric two-wheelers
Q2. The FAME scheme primarily provides:
(a) Manufacturing subsidies only
(b) Demand incentives for EV purchase
(c) Export incentives
(d) Research grants
Answer: (b) Demand incentives for EV purchase
Q3. The Advanced Chemistry Cell (ACC) PLI scheme targets:
(a) Vehicle manufacturing
(b) Charging infrastructure
(c) Battery manufacturing
(d) EV software
Answer: (c) Battery manufacturing
Q4. Batteries typically account for what share of an electric vehicle's cost?
(a) 10-15 per cent
(b) 20-25 per cent
(c) 30-40 per cent
(d) 50-60 per cent
Answer: (c) 30-40 per cent
Q5. Vehicle-to-grid technology enables:
(a) EVs to charge faster
(b) EVs to supply power back to the grid
(c) EVs to run on petrol backup
(d) EVs to communicate with satellites
Answer: (b) EVs to supply power back to the grid during peak demand
Conclusion
India's electric vehicle ecosystem is at an inflection point, with strong growth in adoptions, expanding manufacturing capabilities, and developing infrastructure. The Economic Survey 2025-26's emphasis on sustainable energy transition provides the broader context for this transformation. Policy support through FAME, PLI schemes, and state incentives has catalysed growth, while challenges in costs, infrastructure, and supply chains remain to be addressed. Success requires coordinated action across government, industry, and consumers to build an ecosystem where EVs become the natural choice for India's transportation needs. For UPSC aspirants, understanding the EV transition's multiple dimensions - technological, economic, environmental, and policy-related - is essential for comprehensive answers on energy and industrial policy.