As India accelerates its electric vehicle (EV) revolution, subsidies have played a pivotal role in lowering adoption barriers. The economic support given by the government to support EVs has been a mix of cost and catalytic support, from the FAME-II program everyone knows to relatively new incentives such as PM e-Bus Sewa and the plan to Promote Manufacturing of Electric Passenger Cars in India (SPMPCI). However, the policymakers now have to deal with whether India can continue to subsidise EVs without placing an overwhelming burden on the national exchequer, especially crucial now with increasing economic challenges and fiscal constraints.
India’s Multi-Layered EV Subsidy Ecosystem
India’s EV policy landscape rests on a multi-tiered incentive structure:
FAME-II (Faster Adoption and Manufacturing of Electric Vehicles): Originally launched in 2019 and extended to March 2025 with an allocation of ₹10,000 crore. Electric two-wheelers subsidies were decreased from ₹15,000/kWh to ₹10,000/kWh in April 2024.
SPMPCI Scheme: Launched in early 2025, SPMPCI Scheme provides 15% reductions in import tariffs (compared to 70-100%) to manufacturers of electric vehicles who invest over ₹4,150 crore in local EV manufacturing!
PLI-ACC Scheme: Subsidized on a value addition or production volume basis, look to accelerate mature battery production.
PM e-Bus Sewa: Central subsidy of 40%, for bus manufacture based on capital costs; India is looking to roll out electric buses in 10,000 units with the PM e-Bus Sewa plans in place.
State subsidies: Maharashtra, Delhi, Tamil Nadu, and others have matching incentives there are purchase subsidies, waivers on registration and road tax.
All these subsidies have the effect of lowering upfront costs on EVs, and developing a competitive domestic EV market.
The Financial Considerations of Progress
While these programs are achieving results, they are starting to see scrutiny on the financial commitment involved:
FAME–II payouts: By March 2025, more than ₹6,000 crore has been paid out under FAME-II and more than 13 lakh EVs have been provided benefit.
PLI–ACC Commitments: So far, 3 bidders in the first round of the PLI scheme have committed multi-year investments over ₹18,000 crore.
SPMPCI Cost Estimations: Potential revenue loss from reduced import duties could exceed ₹20,000 crore if all 8,000 yearly imports are availed.
EV subsidies are increasingly relevant in the total subsidy expenditures of India, which were more than ₹4.2 lakh crore in FY 2024–2025 (Union Budget 2025–26) across all sectors.
The Case for Continuing Subsidies
Proponents believe that EV subsidies are a good investment:
- Economic Multipliers: IEEFA and NITI Aayog studies show each ₹1 invested in EV incentives generates ₹3.5 in GDP gains through manufacturing, jobs, and energy savings.
- Energy Security: When the amount of oil imports decreases with increasing EV penetration, the overall trade balance of India improves.
- Climate Goals: Transitioning to electrification of transportation will be a necessary component of India’s net-zero 2070 ambition, and must be accelerated with subsidies.
- Industry Development: Building localisation of EV components and battery ecosystems is slow without the creation of a marketplace, through subsidies .
The Counterpoint – Growing Risks
However, concerns around fiscal sustainability are equally compelling:
- Revenue Drain: A prolonged subsidy structure may cause long-term revenue leaks, especially if linked to imports (as in SPMPCI).
- Market Distortion: Continued reliance on subsidy may discourage innovation or competitiveness.
- Inefficiencies: State-wise variation in disbursement mechanisms creates loopholes, leakages, and duplication.
- Opportunity Cost: Funds for EV subsidy could potentially be reallocated to infrastructure, healthcare, or education.
Learning from Global Precedents
Other nations are actively evolving their EV incentive models as of June 2025:
China: While it phased out general EV subsidies in 2023, it introduced targeted support for battery recycling, autonomous EVs, and rural EV adoption. In 2025, a new national battery recycling standard was launched to promote circular economy principles.
Germany: Subsidies for EV purchases were ended in December 2023, but as of 2025, the government offers tax breaks for electric fleets and funds for public transit electrification.
United States: EV tax incentives in 2025 are closely linked to domestic manufacturing content and income thresholds under the Inflation Reduction Act (IRA). In April 2025, the U.S. Treasury issued revised advice that clarified important requirements for mineral sourcing.
Similar concepts of performance-based subsidies, targeted payout, and phased elimination can be implemented in India.
A Plan for Subsidy Reform
To drive fiscal sustainability and market development, experts recommend:
- Sunset Clauses: Create end dates or cap the volumes for all subsidy programs.
- Performance-Based Disbursal: Pay subsidies based on localization milestones of parts, emissions reduction, and energy efficiency.
- Digital Tracking: Create a universal national platform to track subsidy payments, similar to FASTag for toll payments.
- Diversified Incentives: Create purchase subsidy incentives to production linked tax credits, battery second life credits, or carbon credits.
- Public-Private Partnerships: Collaboratively fund EV infrastructure with a public sector contribution to reduce the subsidy burden.
Conclusion: Reform, Not Retreat
The EV revolution in India has only just begun, and subsidy support has been instrumental in building early momentum. However, as adoption scales and the market matures, subsidy models must evolve. The answer is not to eliminate subsidies—but to reform them. Smart, targeted, and accountable subsidy mechanisms can continue to accelerate EV adoption without compromising India’s fiscal resilience.
If done right, India can transition from subsidy dependence to self-sustained, innovation-driven growth in electric mobility.