Auto & EV: Budget 2026–27 Pushes Supply Chains Not Subsidies

From Consumption Support to Manufacturing Depth

Union Budget 2026–27 marks a clear shift in India’s auto and electric vehicle (EV) policy framework. Instead of headline consumer subsidies, the government has chosen to strengthen manufacturing depth, supply chain security, and long-term cost competitiveness. The focus is structural, not cyclical — aimed at making India a durable auto and EV manufacturing hub rather than a demand-stimulated market.

This approach reflects policy maturity. EV adoption is no longer seen as a subsidy-led transition but as an industrial opportunity spanning batteries, electronics, minerals, software, and public transport infrastructure.

EV Batteries: Lowering Costs at the Source

One of the most meaningful announcements for the EV ecosystem is the expansion of Basic Customs Duty (BCD) exemptions on capital goods used in lithium-ion cell manufacturing and battery energy storage systems. The inclusion of 35 additional capital goods and full duty exemption on critical minerals such as lithium, cobalt, and rare earth elements directly lowers entry barriers for domestic giga factories.

This matters because battery costs still account for 35–40% of EV vehicle costs. By targeting inputs rather than end-products, the Budget addresses EV affordability structurally rather than temporarily.

The creation of Rare Earth Corridors in states such as Odisha and Tamil Nadu further strengthens upstream security — a critical move at a time when global mineral supply chains are becoming geopolitically sensitive.

Public Transport EVs: Quiet but Strategic Support

The Budget introduces a payment security framework for e-bus adoption, reducing counterparty risk for manufacturers and financiers supplying electric buses to state transport undertakings. While this is not a direct subsidy, it improves project Bankability and accelerates large-scale EV deployment in public mobility systems.

Complementing this is the PM E-Drive ecosystem, supported through a unified digital platform for EV charging and management. Together, these initiatives target scale and reliability — the two biggest constraints in EV public transport adoption.

Auto MSMEs and Electronics: Strengthening the Middle Layer

A Rs 10,000 crore SME Growth Fund has been earmarked to support MSMEs, including auto component manufacturers, for capacity expansion and technology upgrades. This is critical as auto OEM competitiveness is increasingly determined by the resilience of Tier-1 and Tier-2 suppliers. Further, the expansion of the Electronics Components Manufacturing Scheme to Rs 40,000 crore and the launch of Semiconductor Mission 2.0 directly support vehicle electronics, power management systems, sensors, and infotainment — all high-value components in EVs and next-generation vehicles.

Green Fuels and Cost Rationalisation

The Budget also advances alternative fuels by offering full excise duty exclusion on the biogas component in blended CNG/PNG. This supports compressed biogas (CBG) adoption and improves fuel economics for commercial fleets — a segment critical to emissions reduction.

Investment Perspective

Budget 2026–27 does not chase EV headlines. Instead, it builds cost curves, supply chains, and financing confidence. For investors, the opportunity lies not just in OEMs, but across battery materials, electronics, public transport suppliers, and auto component exporters. This is policy designed for compounding, not quick wins.