Union Budget 2026 marks a decisive inflection point for India’s automotive and electric vehicle (EV) ecosystem. By simultaneously addressing battery economics, semiconductor capability, cleaner logistics and MSME financing, the Budget lays out a coherent strategy to strengthen domestic value addition while aligning with the climate and modal-shift priorities outlined in the Economic Survey.
At the heart of this approach is a renewed push to deepen Domestic Value Addition (DVA) across the EV supply chain—spanning mineral processing, cell manufacturing and recycling. This not only reduces dependence on strategic imports but also cushions the industry against global commodity volatility, strengthening long-term energy security.
Adding an external growth lever, the recently concluded India–UK Free Trade Agreement introduces phased, quota-based duty reductions on select UK-origin vehicles while expanding export opportunities for Indian automotive components and EV subsystems. The structure of the agreement creates headroom for premium OEM sales and export growth without destabilising the domestic mass-market EV ecosystem. Together, these developments position the industry for a more resilient, self-reliant and globally integrated growth trajectory.
Battery cost compression and cell-centric value addition
A central pillar of Budget 2026’s EV strategy is lowering the cost of energy storage—the single largest contributor to EV pricing. The extension of Basic Customs Duty (BCD) exemptions on capital goods for lithium-ion cell manufacturing, now broadened to include Battery Energy Storage Systems (BESS), signals a clear shift from assembly-led manufacturing to deeper, cell-centric value addition.
This is complemented by customs duty exemptions on critical minerals such as lithium and cobalt, materially reducing input costs for cells and battery packs. Together, these measures strengthen the business case for domestic gigafactories and align with NITI Aayog’s long-term electrification outlook, which projects EVs accounting for nearly 90 percent of new vehicle sales by 2047. Lowering total cost of ownership earlier in the adoption curve brings mass-market segments firmly into play.
Semiconductor deepening through ISM 2.0
The launch of India Semiconductor Mission (ISM) 2.0 significantly expands India’s semiconductor ambition. Moving beyond fabs and ATMP units, the new phase focuses on equipment, materials, full-stack Indian design IP and resilient supply chains. This is backed by a substantial scale-up of the Electronics Components Manufacturing Scheme (ECMS) to ₹40,000 crore.
Building on ISM 1.0—which has already anchored ten projects under implementation—this combined push enables localisation of high-value EV subsystems such as power electronics, battery management systems, sensors and controllers that remain largely import-dependent today. As EV architectures become increasingly electronics- and software-intensive, local semiconductor capability shortens development cycles, stabilises sourcing and improves unit economics—pushing India higher up the global semiconductor value chain at a critical moment.
Cleaner, More Predictable Logistics
Budget 2026 places strong emphasis on logistics decarbonisation and reliability—both critical for automotive supply chains. The operationalisation of 20 new national waterways over the next five years, development of ship-repair ecosystems in Varanasi and Patna, and a coastal cargo promotion scheme targeting a 12 percent modal share for inland and coastal transport by 2047 collectively aim to shift freight away from carbon-intensive road transport.
This is reinforced by the proposed east–west Dedicated Freight Corridor connecting Dankuni and Surat, optimising long-haul movement of minerals, components and finished vehicles. These measures echo the Economic Survey’s call for a logistics reset—focusing on waterways, port digitisation, reduced turnaround times and climate resilience. For OEMs and suppliers, an inland-first, multimodal logistics playbook offers not just cost efficiencies but measurable Scope-3 emissions reductions.
MSME liquidity and supplier scale
The auto components sector—valued at approximately ₹6.73 lakh crore in FY25 and recording a trade surplus of US$453 million—enters this Budget cycle on strong fundamentals. Budget 2026 builds on this momentum through MSME-focused equity instruments, expansion of the Self-Reliant India (SRI) Fund and deeper adoption of the TReDS invoice-discounting platform.
Improved access to capital enables Tier-2 and Tier-3 suppliers to invest in tooling, automation and quality systems—essential for high-precision EV components and electronics. Stronger supplier finance tightens the link between localisation, quality and export competitiveness, allowing the components ecosystem to scale in step with OEM demand for semiconductor-intensive EV platforms.
Climate alignment meets competitiveness
Crucially, Budget 2026 reinforces India’s climate-aligned industrial strategy. Battery-related duty relief lowers EV prices in the near term while accelerating long-term decarbonisation by localising carbon-intensive imports. Investments in waterways, coastal shipping and freight corridors reduce emissions from logistics—one of the hardest-to-abate segments of the automotive value chain.
As ports digitise and shipping decarbonises, companies gain the ability to quantify Scope-3 emissions reductions—an increasingly critical requirement for global OEM partnerships, investor-grade transition plans and export-market credibility.
What it means for the industry
- Cost Curve: Duty relief on battery equipment and critical minerals compresses the EV bill of materials, improving pricing flexibility and accelerating adoption beyond early adopters.
- Capability Curve: ISM 2.0 and ECMS enable localisation of electronics-heavy EV subsystems, reducing lead times and improving platform agility.
- Carbon Curve: Waterways and multimodal logistics structurally lower emissions and logistics costs while improving reliability.
- Supplier Finance: Stronger MSME liquidity supports deeper localisation, higher quality and export resilience across the value chain.
The Big Picture
Budget 2026 materially strengthens the strategic competitiveness of India’s automotive and EV industry. By combining battery cost relief, semiconductor deepening, logistics decarbonisation and supplier-side capital support, it accelerates EV adoption, expands domestic value addition and builds a more resilient, climate-aligned mobility ecosystem—moving India decisively closer to a self-reliant, low-carbon transport future.
