India’s EV push faces subsidy test as Centre asks industry to make economics work
India's electric vehicle industry is entering a phase where demand-side subsidies under the PM E-DRIVE scheme are being wound down, with the Centre pressing manufacturers to make EVs affordable through localisation, technology, and scale rather than continued government support.
Demand incentives for electric two-wheelers and three-wheelers under PM E-DRIVE were scheduled to end by 31 March 2026, even as the broader PM E-DRIVE programme (covering charging infrastructure and other segments) has been extended to 31 March 2028.
The policy shift follows the earlier FAME I (2015-2019) and FAME II (2019-2024) schemes, which relied on direct purchase incentives to build initial EV demand and manufacturing capacity.
The government's position is that having solved the "first challenge" of adoption, the industry must now build a market that can increasingly stand on its own, without indefinite reliance on demand incentives.
FAME India Scheme and Its Evolution to PM E-DRIVE
The Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles (FAME) India Scheme was the government's principal EV demand-incentive programme, run in two phases before being succeeded by PM E-DRIVE. Each phase progressively refined the subsidy design in response to implementation issues such as improper claims and import-dependence.
Key Details
- FAME Phase I: 1 April 2015 to 31 March 2019; supported around 2.8 lakh electric/hybrid vehicles with about ₹359 crore in incentives, plus support for e-buses and charging stations.
- FAME Phase II: 1 April 2019 to 31 March 2024; outlay of ₹11,500 crore; supported over 16.7 lakh electric vehicles and thousands of electric buses and public charging stations.
- PM E-DRIVE (Electric Drive Revolution in Innovative Vehicle Enhancement): launched September 2024 with a total outlay of roughly ₹10,900 crore over about two years, providing incentives such as ₹10,000 per kWh for e-two-wheelers and ₹50,000 per vehicle for e-three-wheelers, later reduced and phased out for these categories by 2026.
- Vehicles have generally been required to meet a minimum domestic localisation threshold (around 50%) to qualify for incentives, addressing earlier FAME-II concerns about imported components being sold as "Made in India" EVs.
The article's description of a "subsidy test" refers directly to this scheduled taper of PM E-DRIVE demand incentives — the scheme succeeding FAME II — with the Centre signalling that the next phase of EV growth must be driven by cost reduction rather than fresh incentive schemes.
PLI Scheme for Advanced Chemistry Cell (ACC) Battery Storage
Since batteries are the single largest cost component of an EV, the government's strategy to make EVs "stand on their own" economically relies heavily on domestic battery manufacturing under the Production-Linked Incentive (PLI) framework, separate from direct vehicle-purchase subsidies.
Reducing battery import dependence through the ACC PLI scheme is the structural, supply-side lever the Centre is counting on to cut EV costs, making purchase subsidies progressively less necessary — the economic logic underlying the "subsidy test" the industry now faces.
GST Concession and India's EV30@30 Adoption Target
Beyond direct subsidies, the government has used indirect tax policy and long-term adoption targets to support EV uptake, both of which remain in place even as direct demand incentives taper off.
Key Details
- GST on electric vehicles is levied at a concessional 5% (compared to significantly higher rates on conventional and larger fossil-fuel vehicles), and GST on EV chargers/charging stations was cut from 18% to 5%.
- India's EV adoption target, aligned with the global EV30@30 campaign, aims for electric vehicles to constitute 30% of new vehicle sales by 2030.
- EVs accounted for only about 7.6% of total vehicle sales as of 2024, meaning a substantial acceleration in adoption is needed over the remainder of the decade to meet the 2030 target.
- NITI Aayog has been the principal policy body shaping India's long-term EV roadmap and charging-infrastructure planning (target of over a million charging stations by 2030).
The GST concession represents a subsidy tool the Centre is retaining even as direct purchase incentives are phased down, reflecting a calibrated approach — cheaper indirect tax support continues, while the more expensive per-vehicle cash incentives are being wound back as the sector is expected to mature.
- PM E-DRIVE outlay: approximately ₹10,900 crore, launched September 2024; two-wheeler/three-wheeler demand incentives ended by 31 March 2026; overall scheme extended to 31 March 2028.
- FAME II outlay: ₹11,500 crore (2019-2024); supported over 16.7 lakh EVs.
- ACC Battery Storage PLI outlay: ₹18,100 crore for 50 GWh capacity, approved May 2021, administered by the Ministry of Heavy Industries.
- GST on EVs: 5% (vs. higher rates for conventional vehicles); GST on EV chargers: 5% (reduced from 18%).
- India's EV30@30 target: 30% of new vehicle sales to be electric by 2030; EVs were about 7.6% of total sales in 2024.
- Minimum domestic localisation threshold commonly applied for incentive eligibility: around 50%.