A new study finds India’s electric vehicle subsidies deliver uneven climate benefits
Electric two-wheelers cut nearly twice as much carbon per rupee of public support as electric cars
Researchers say better targeting of incentives could improve climate returns
India’s push to promote electric vehicles (EV) as a climate solution is yielding uneven results, with electric two-wheelers delivering far greater emissions reductions per rupee of public support than electric passenger cars, according to a new study.
The analysis, Financial Support for EVs in India, by the think tank Centre for Social and Economic Progress, assessed the climate impact of government subsidies and tax incentives for EVs and compares them with other publicly supported mitigation options, including rooftop solar, offshore wind and green hydrogen.
The study evaluates purchase subsidies under the Centre’s PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme, alongside tax concessions such as lower Goods and Services Tax (GST) and motor vehicle tax for electric cars and two-wheelers. It also benchmarks India’s EV incentives against those in Norway, the United States and China.
One of the study’s central findings is that electric two-wheelers avoid nearly twice as much carbon dioxide (CO₂) per rupee of government support as electric passenger cars. Researchers attribute this largely to the much higher incentives offered for electric cars, combined with their relatively modest emissions advantage over conventional vehicles. That advantage is constrained by lower energy efficiency and India’s coal-dominated electricity grid.
By contrast, two-wheelers — which already account for a large share of India’s vehicle fleet — require lower subsidies while delivering stronger emissions reductions, making them a more cost-effective climate intervention in current conditions.
The study finds that cutting a tonne of CO₂ through electric passenger cars costs the government significantly more than doing so through clean power options such as residential rooftop solar or offshore wind. The cost of emissions abatement through EVs is comparable only to green hydrogen used to replace grey hydrogen — another technology that remains at an early stage and depends heavily on public support.
India’s grid emissions further weaken the climate impact of EVs. Fossil fuels account for nearly three-quarters of electricity generation, reducing the emissions savings from electric vehicles while increasing the mitigation value of investments in renewable energy.
In absolute terms, India’s incentives for electric cars — largely in the form of GST concessions — are lower than those in Norway, the US and China. However, the study finds that India achieves greater CO₂ abatement per unit of incentive, largely because conventional vehicles have higher baseline emissions.
When adjusted for purchasing power parity (PPP), however, the effective incentive per tonne of CO₂ avoided in India becomes nearly four times higher than the nominal value. This suggests a substantial fiscal effort relative to income levels, although India still trails Norway and China even on a PPP-adjusted basis.
India’s EV transition gathered pace with the launch of the FAME-I scheme in 2015 and accelerated under FAME-II from 2019. As a result, EV sales rose from 0.6% of total vehicle sales in the 2018–19 financial year to 7.5% in 2024–25.
However, the study cautions that the assessment window for climate impact remains limited and warns against assuming that rising EV adoption will automatically deliver large emissions reductions.
Rather than withdrawing support prematurely, the authors argue for more targeted incentives. They recommend prioritising segments that are harder to electrify and deliver higher climate benefits — such as buses and freight vehicles — while gradually scaling back subsidies for private electric cars once they achieve cost parity with petrol and diesel models.
The study also finds that investments in shared charging infrastructure and electricity grid upgrades deliver far greater climate returns than vehicle purchase subsidies alone.
Supporting EV charging with cleaner electricity — through energy storage, solar-linked time-of-day tariffs and integration with rooftop solar — could significantly increase emissions reductions from EV use, it says.
Among its recommendations, the study urges the government to:
develop a clear decarbonisation roadmap for road transport that links incentives to climate outcomes;
introduce sunset clauses for subsidies based on measurable milestones;
complement financial incentives with regulatory measures such as tighter CO₂ emission standards for manufacturers and fleet electrification mandates;
significantly expand research and development, particularly in battery technology, to improve efficiency and reduce long-term reliance on subsidies.
The report concludes that while EVs are not a climate silver bullet — especially while electricity generation remains carbon-intensive — they remain India’s most viable long-term option for decarbonising road transport.
The challenge, it argues, is to ensure that public spending on EVs delivers genuine climate gains, rather than becoming an expensive stopgap in the race to net zero.