Boost To EV Battery Manufacturing: A Step Towards Achieving Sustainable Climate Goals?

The government has announced a National Manufacturing Mission to aid clean tech manufacturing for production of PV cells, EV batteries, grid scale batteries, etc

One of the key highlights of the Union Budget 2025 was the Government’s initiatives to create ‘Atmanirbhar’ clean tech manufacturing in India to avoid any supply chain disruptions and meet India’s Net Zero commitment by 2070. In furtherance of this, the government has announced a National Manufacturing Mission to aid clean tech manufacturing for production of PV cells, EV batteries, grid scale batteries, etc. The Manufacturing Mission is expected to unleash the second wave of ease of doing business (EoDB 2.0) in cooperation with the state governments as suggested in the Economic Survey 2025. The Ministry of Heavy Industries has also formulated various Product Linked Incentive (“PLI”) and other incentive schemes to address challenges faced in the adoption of electric mobility including development of charging ecosystem¹, and other measures like simplification of approval for EC charging stations to promote electric vehicles.

In furtherance with the aforementioned initiatives and to promote a domestic ecosystem, the Finance Minister in the Union Budget 2025 announced the following proposals:

• Imports of Lithium-ion battery waste and scrap will be fully exempt from payment of Basic Customs Duty.
• Addition of 35 capital goods for EV battery manufacturing to the list of exempted capital goods.
• Imports of cobalt powder and waste, lead, zinc and 12 more critical minerals will be fully exempt from payment of Basic Customs Duty.

These proposals are all the more critical in light of Lithium-ion batteries accounting for approximately 40% of an EV’s total production cost.² In July 2024, the Government had reduced the tariffs on certain critical minerals and now, the tariffs on these critical minerals which are not available domestically are completely phased out. Furthermore, 60% of the cost of lithium-ion EV batteries is attributable to its metal components³. For e.g., cobalt metal is used for ‘cathode’ in a battery. Thus, the slashing of tariffs on critical metals being used in EV batteries will provide domestic manufacturers with a competitive edge as compared to their global competitors.

These critical changes further complement the PLI and other incentive schemes which have already been implemented by the government. The success of the Phased Manufacturing Programme (PMP) in India for mobile phones in achieving local value addition and employment is driving the incentives. The tariff and non-tariff barriers coupled with the incentives have helped in development of a domestic ecosystem in the last few years to achieve `20,395 crore exports of mobile phones in 2024, in which India emerged as the 3rd largest exporter in the smartphone market, from the 23rd largest exporter in 2019 and with negligible exports of mobile phone in 2015. In light of the success of the PMP for smartphones, the same is sought to be replicated for the EV manufacturing sector through these proposals / initiatives.

The Scheme for Promotion of Manufacturing of Electric Passenger Cars in India (SPMEPCI) was initiated by the Ministry of Heavy Industries in 2024 to promote the manufacturing of electric cars in India. This scheme requires the applicants to invest a minimum of `4,150 crore and to achieve a minimum Domestic Value Addition (“DVA”) of 25% at the end of the third year and DVA of 50% at the end of the fifth year. This incentive scheme shall help companies in achieving the Domestic Value addition.

In India, it is observed that EV adoption has been slower in comparison to other countries, due to higher prices and challenges in terms of non-availability/ lower accessibility of charging stations. Even today, the percentage of EV used in India in comparison to normal passenger vehicles (ICE) is miniscule whereas China was able to reverse the trend.

Thereby, to achieve what other countries like China have already achieved, the market for adoption of new energy vehicles (EV, Hybrid, hydroger, flex fuel) in India needs further support. To address these key challenges, the Central Government along with the Ministry of Heavy Industry have initiated various PLI and other incentive schemes:

1. Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme Phase-II: The Government implemented this scheme for a period of five years from 1st April 2019 with a total budgetary support of `11,500 crore. The scheme incentivised e-2Ws, e-3Ws, e-4Ws, e-buses and EV public charging stations.

2. Production Linked Incentive (PLI) Scheme for Automobile and Auto Component Industry in India (PLI-Auto): The Government notified this scheme on 23rd September 2021 for the Automobile and Auto Component Industry in India for enhancing India’s manufacturing capabilities for Advanced Automotive Technology (AAT) products with a budgetary outlay of `25,938 Crore. The scheme proposes financial incentives to boost domestic manufacturing of AAT products with minimum 50% DVA and attract investments in the automotive manufacturing value chain.

3. PLI Scheme for Advanced Chemistry Cell (ACC): The Government on 12th May 2021 approved PLI Scheme for manufacturing of ACC in the country with a budgetary outlay of `18,100 crore. The scheme aims to establish a competitive domestic manufacturing ecosystem for 50 GWh of ACC batteries.

4. PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) Scheme: This scheme with an outlay of `10,900 crore was notified on 29th September 2024. It is a two-year scheme which aims to support electric vehicles including e-2W, e-3W, e-Trucks, e-buses, e-Ambulances, EV public charging stations and upgradation of vehicle testing agencies.

5. PM e-Bus Sewa-Payment Security Mechanism (PSM) Scheme: This Scheme notified on 28th October 2024, has an outlay of `3,435.33 crore and aims to support deployment of more than 38,000 electric buses. The objective of the scheme is to provide payment security to e-bus operators in case of default by Public Transport Authorities (PTAs).

Additionally, these incentives should be analysed in light of the global trade wars and opportunities created by the same for Indian manufacturers. For example, the United States of America, under the Trump administration, has implemented significant tariffs aimed at managing their own trade deficit with certain countries and protecting their domestic industries. Some of the major changes include a 25% tariff being imposed on imports from Mexico and Canada, primarily targeting steel and aluminium products, while a 10% tariff was levied on imports from China. Further, the tariffs imposed on China are likely to make Chinese imports more expensive and less competitive in the U.S. market.

This shift in U.S. trade policy presents a strategic opportunity for India to capitalize on global manufacturing market share. As American businesses seek to diversify their supply chains away from China to avoid higher costs, India can position itself as a reliable alternative for manufacturing and exports especially in terms of EV lithium-ion battery manufacturing and exports. In 2023, lithium-ion EV batteries were imported into U.S. majorly from China, South Korea, and Japan.⁴

Ultimately, these policy changes also align with India’s revised Nationally Determined Contributions (NDCs) under the Paris Agreement, emphasizing clean energy transitions and sustainable development. By enhancing incentives for the domestic EV industry, the Government has not only fostered economic growth but has also taken a significant step toward meeting its commitments to reduce greenhouse gas emissions and achieve 50% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030. Evidently, the key focus of the Make in India initiative is on sustainable manufacturing.

Thus, the Union Government’s initiatives on tariff changes coupled with the national manufacturing mission and various incentive schemes are likely to bolster India’s EV sector by creating a self-reliant ecosystem and contribute to the global supply chains while also increasing the employment opportunities for the Indian youth.

Disclaimer – The views expressed in this article are the personal views of the authors and are purely informative in nature.