In the Union Budget 2025-26, the government of India has taken some major steps towards the manufacturing of electric vehicles (EV), batteries for the EVs and the import of critical minerals from other countries and their recycling, which would further aid the EV and battery manufacturing industry.
“The government has announced plans to set up a national manufacturing mission to support manufacturing of electric vehicle batteries, motors and controllers with a focus on small, medium and large industries (MSME),” Moushumi Mohanty, senior programme manager and head of electric mobility at Delhi-based think tank Centre for Science and Environment (CSE).
The finance minister Nirmala Sitharaman also announced the exemption of basic custom duty (BCD) on cobalt powder and waste, the scrap of lithium-ion battery, lead, zinc and 12 more critical minerals that will aid their manufacturing in the country majorly by MSMEs.
To support this initiative, the government has allocated Rs 410 crore for the National Critical Mineral Mission in the budget estimate for 2025-26. Further, the budget allocation for production-linked incentive (PLI) Scheme for National Programme on Advanced Chemistry Cell (ACC) Battery Storage has also been increased from Rs 15.42 crore to Rs 155.76 crore.
“The new Budget’s focus on critical minerals, including the exemption from import duties, aims to bolster MSMEs, stimulate domestic manufacturing and strengthen India’s circular economy. By promoting recycling and reducing import dependency, the government intends to lower costs and foster sustainable industrial growth,” said Shobhit Srivastava, programme manager, industrial waste circularity, CSE.
“This initiative has the potential to enhance global competitiveness and job creation, though its success hinges on effective implementation, infrastructure investment and robust public-private collaboration,” added Srivastava.
The finance minister also mentioned that a policy for recovery of critical minerals from tailings will be brought out. Nivit Kumar Yadav, programme director, industrial pollution, CSE, said: Considering the process as well as technology for recovery of critical minerals will be cost intensive, it is expected that the policy is able to address the inclusiveness of financial aspects of the recovery process as well as providing financial assistance to the industries / sector to set up recovery units.
“The exemption of customs duty on cobalt, one of the more high-priced battery metals, will be an enabler for lithium-ion battery manufacturing. In addition, the government has announced support for MSMEs with working capital and access to credit, as well as funds for technology upgrades, moves that can provide an impetus to EV and EV component manufacturing in the country,” said Mohanty.
"The National Manufacturing Mission in combination with the supply side support the PLI scheme and the demand-side Faster Adoption and Manufacturing of Electric Vehicles (FAME) II scheme, offers potential impetus for growth of adoption of EVs,” she added.
The government has introduced significant alterations to the schemes it funds in its budget allocations. The FAME scheme and the Electric Mobility Promotion Scheme of 2024 have received no budget outlay.
On the other hand the budget allocation for the Prime Minister Electric Drive Revolution in Innovative Vehicle Enhancement (PME-DRIVE) scheme has been increased from Rs 1,870.76 crore in 2024-25 to Rs 4,000 crore in 2025-26. The government has increased the budget for the PLI scheme for Automobiles and Auto Components from Rs 346.87 crore in 2024-25 to Rs 2,818.85 crore in 2025-26.
The removal of BCD on lithium-ion battery scrap can promote the recycling of EV batteries, according to Mohanty. This could reduce the costs of production of batteries and aiding in establishing a circular economy for the industry, but there are some caveats to this.
“One, it is essential to build lithium-ion recycling infrastructure, including collection and transportation processes and standards as well as capability, to be able to leverage the policy changes with the import of battery scrap,” said Mohanty.
“Two, the EU's regulation to restrict export of end of life batteries and black mass, an intermediary product of lithium-ion battery recycling, in a bid to encourage recycling within Europe will limit access sources of battery scrap for Indian recyclers,” she added.
This would mean that the country’s lithium-ion recycling industry would have to depend on lithium-ion scrap being generated within the country “to improve capacity utilisation of recycling plants. And that can be 2-3 years away considering the age of electric vehicles in India,” highlighted Mohanty.