NEW DELHI: The Centre is considering extending the 5% concessional basic customs duty (BCD) on lithium-ion cells used in battery packs for electric vehicles (EVs) for another two years in the upcoming Union budget, according to two people familiar with the matter, as domestic manufacturing has failed to gain momentum.
“The proposal from the country’s automobile industry came up during consultations with the ministry of finance,” said one of the two people cited above.
“The recommendation is being considered by the Union ministry of finance,” said the second person. Both persons quoted earlier did not want to be identified.
The battery accounts for up to half of an EV’s price, and India’s lithium-ion cell imports have surged to $3 billion in FY25 from $1.8 billion in FY22, according to data from the commerce ministry's trade portal.
India currently only assembles imported batteries, and demand for these cells is expected to quadruple from the existing 15 gigawatt-hours (GWh) to 60-65 GWh by FY30. Domestic battery manufacturing plans haven’t gone as planned, with no disbursals under the ₹18,100-crore production-linked incentive (PLI) scheme for advanced chemistry cells (ACC) since launch in 2021.
"The extension of the concessional duty on cells would be supportive for the growth of battery adoption, given that the domestic manufacturing industry is in its early days and currently companies majorly assemble batteries in the country after importing the cells,” said Debmalya Sen, president of industry lobby India Energy Storage Alliance (IESA). “The local battery manufacturing facilities are expected to come up to commercial scale by the end of this decade. If the duty is increased, the assembling industry will get affected."
Lithium-ion cells used in EV batteries were exempt from BCD until 2019, when the government imposed a concessional 5% levy to promote domestic manufacturing of batteries. After extensions in subsequent budgets, it is set to expire on 31 March 2026.
Finance minister Nirmala Sitharaman has focused on boosting green mobility in the last three budgets. In her speech for the FY24 full budget, she announced duty exemptions on imports of machinery needed to manufacture Li-ion batteries in India. She followed it up with BCD exemptions and reductions on 25 critical minerals, including lithium, in the FY25 budget, and exempting 35 capital goods in EV battery manufacturing from BCD in the FY26 announcements.
“Extending the 5% concessional BCD would likely contain near-term EV prices by preventing a duty step-up on imported cells and packs, which is important since batteries account for 40–50% of EV cost and the greenium remains high, especially for commercial vehicles,” said Alekhya Datta, director, electricity and renewables division, The Energy and Resources Institute (TERI).
Since India still largely imports cells, the concession mainly supports adoption in the short run but could dilute the urgency for investments in domestic cell manufacturing, unless it is coupled with localization or PLI-linked milestones, Datta said. “Overall, the impact is mildly positive for affordability and uptake, with limited fiscal implications, but it would require safeguards to avoid prolonging import dependence.”
EV batteries of 3-7 kilowatt-hours (kWh) are used in two and three-wheelers in India, while electric buses and trucks have 250-300 kWh batteries. Demand is going to rise as adoption of EVs grows. According to market research firm Mordor Intelligence, India’s EV market value is expected to double to $110 billion by 2029.
Demand is rising globally, too. “In 2024, as electric car sales rose by 25% to 17 million, annual battery demand surpassed 1 terawatt-hour (TWh)—a historic milestone,” the International Energy Agency (IEA) said in its outlook in March last year.
Investments into battery technology have created a 3 TWh capacity by 2024, and this is expected to triple by 2029 if all planned projects are completed, according to the IEA. Battery prices have also declined below $100 per KWh over the years as the prices of raw materials like lithium fell.
“Cheaper battery minerals have been an important driver. Lithium prices, in particular, have dropped by more than 85% from their peak in 2022,” the IEA said.
Queries emailed to the ministries of finance and heavy industries, Society of Indian Automobile Manufacturers (Siam), and EV makers Tata Motors, Mahindra & Mahindra, Hyundai, Kia and JSW MG Motor on 1 January remained unanswered until press time.
Queries emailed to Ola Electric, Reliance Industries, and Rajesh Exports, which had qualified under the PLI-ACC scheme on 1 January, remained unanswered. Contemporary Amperex Technology Co. Ltd (CATL) and BYD, two of the world’s largest battery makers, also didn’t respond to emails.
In India, over 150 GWh of Li-ion battery cell capacities are to become operational by 2030, with investments exceeding ₹75,000 crore for committed capacities, said Icra in a March 2025 report. “Some of the localization is through technology transfers/alliances with overseas battery cell players.”
But the rating firm cautioned that Indian battery manufacturing projects are exposed to risks arising from time and cost overruns, geopolitical shocks, forex fluctuations, and dependence on imports for raw materials.