India’s EV push accelerates amid debate on cost-effectiveness of incentives
India’s push for electric vehicles has seen significant progress, with mass adoption and increased investments.
However, research highlights that EV incentives are a costlier method for emission reduction compared to alternatives like solar power.
The carbon-intensive electricity grid further limits the climate benefits of EVs.
There has been a rapid progress across electric vehicle (EV) adoption, public transport electrification and domestic manufacturing in 2025 under Centre's flagship incentive schemes, according to an official statement by the Union Ministry of Heavy Industries (MHI).
The ministry reported mass EV adoption under the Prime Minister’s Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE). Further, payment security for electric buses emerged successful and localisation was deepened through multiple production-linked incentive (PLI) programmes.
At the same time, recent research has flagged important trade-offs. A discussion paper by the Delhi-based think tank Centre for Social and Economic Progress (CSEP) found that EV incentives are a costlier way to cut emissions than several other domestic climate actions. The cost per tonne of CO2 avoided through electrification of passenger cars is significantly higher than through residential rooftop solar (RTS) or offshore wind, though it is broadly comparable to green hydrogen used as a replacement for grey hydrogen.
Though the discussion paper did not state the total quantum of emissions reduced by EVs in India so far, it noted that solar photovoltaic power delivers much cheaper emissions reductions, partly because it has benefited from sustained policy support since the launch of the National Solar Mission in 2010.
The paper also pointed out that the climate benefits of EVs in India are constrained by the country’s carbon-intensive electricity grid, where fossil fuels account for nearly 75 per cent of generation, boosting the mitigation potential of renewables while weakening the emissions impact of vehicle electrification.
PM E-DRIVE drives mass EV adoption
Launched in September 2024 with a total outlay of Rs 10,900 crore, PM E-DRIVE has emerged as the government’s primary demand-side intervention for electric mobility. By the end of December 2025, Rs 1,703 crore had been disbursed, supporting the sale of more than 2.1 million EVs across segments, according to MHI’s year-end review.
The scheme’s target for L5 electric three-wheelers was achieved well ahead of schedule, reflecting rapid electrification in last-mile and commercial transport. PM E-DRIVE aims to support over 2.8 million EVs, 14,028 electric buses and associated charging infrastructure by March 2028. In a significant policy expansion, MHI also issued India’s first central guidelines for electric trucks, signalling intent to extend electrification into freight and logistics.
e-Bus Sewa de-risks public transport electrification
To address long-standing concerns over delayed payments by state transport undertakings, the ministry operationalised the PM e-Bus Sewa Payment Security Mechanism in October 2024, with an outlay of Rs 3,435 crore. Covering more than 38,000 electric buses (e-buses), the mechanism uses escrow arrangements and RBI-backed direct debit mandates to protect OEMs and operators from payment defaults.
As of December 2025, 15 states and Union Territories had submitted the required mandates to the Reserve Bank of India — a key precondition for large-scale e-bus deployment. Meanwhile, state-owned CESL concluded tenders for 10,900 electric buses across five major cities, among the largest aggregated e-bus procurements globally.
PLI schemes deepen localisation
The PLI scheme for automobiles and auto components, with an outlay of Rs 25,938 crore, continued to anchor India’s advanced manufacturing push. According to MHI, 82 applicants have been approved, committing investments of around Rs 42,500 crore. As of September 30, 2025, cumulative investment stood at Rs 35,657 crore, with determined sales of Rs 32,879 crore and nearly 49,000 jobs generated. Incentives worth Rs 2,322 crore have been disbursed for the first two performance years.
By December 2025, incentives covered more than 1.4 million EVs, largely electric two-wheelers. The scheme mandates a minimum 50 per cent domestic value addition, with eight OEM champions and ten component champions securing certification across 131 vehicle variants.
On the battery front, the PLI scheme for Advanced Chemistry Cell storage has begun to take shape. Of the targeted 50 GWh capacity, 40 GWh has been awarded to firms such as Ola Cell Technologies and Reliance New Energy. Ola has commissioned a 1 GWh facility with pilot production underway. The scheme has attracted Rs 2,878 crore in investments and generated over 1,100 jobs.
MHI has also advanced implementation of the Scheme to Promote Manufacturing of Electric Passenger Cars, aimed at attracting global OEMs with defined localisation thresholds, and launched the Rs 7,280 crore scheme to promote manufacturing of sintered rare earth permanent magnets, critical for EVs, wind turbines and electronics.
Climate lens on EV incentives
India’s EV journey began in earnest with the FAME-I scheme in 2015 and gained momentum after FAME-II in 2019, with EV sales rising from 0.6 per cent of overall sales in FY19 to 7.5 per cent in FY25. Shyamasis Das, Fellow at CSEP and one of the authors of the above-mentioned research paper, said, “The window for assessing the climate impact of EV incentives is relatively short."
He emphasised that the high carbon burden of India’s electricity grid is a major reason EVs currently deliver lower climate benefits, making it a strategic imperative to accelerate clean power deployment. However, he cautioned against delaying EV-related climate interventions, warning of the opportunity cost of waiting.
In a price-sensitive market like India, Das said, sustained government support remains critical, noting that premature rollback of incentives has stalled EV adoption in some global markets. He argued that directing incentives towards shared infrastructure, such as public charging stations, is a more cost-effective use of public funds, benefiting a wider range of users.
Going forward, Das said EV incentives should evolve — focusing on hard-to-electrify segments such as trucks and buses, tapering support for self-sustaining segments and complementing subsidies with stricter CO2 emission targets and fleet electrification mandates. While alternatives such as biofuels and fuel cells deserve consideration, he said EVs remain a promising long-term solution for India’s transport decarbonisation, warning that a fragmented approach could slow progress towards net zero.
As per MHI, 2025 marked a turning point for the auto sector (primarily EV), as flagship schemes moved from rollout to scale — EV sales crossed into the millions, e-bus deployment was backed by payment security and PLI-linked investments began translating into factories, jobs and domestic value addition.
“India has made commendable progress in supporting electric vehicles through demand incentives and supply-side measures, said Moushumi Mohanty, senior programme manager, EV policy research and analytics, the Centre for Science and Environment.
“The next phase of EV transition must now focus on regulatory instruments — such as emission credits and an electric vehicle mandate — to ensure automakers steadily increase the share of EVs in their portfolios. Linking this to carbon dioxide emission norms and average fuel consumption of Internal Combustion Engine vehicles can create a clear, enforceable pathway for faster electrification,” she added.