Electric vehicle ecosystem gets incentives to localise amid China threat

New Delhi: Manufacturers of electric vehicles (EVs) and their parts have got another nudge from the government to double down on localisation with the announcement of four special corridors for rare earth minerals, and extension of duty concessions for lithium-ion cell manufacturing and import.

Further, the allocation for production-linked incentive scheme for auto sector (PLI-Auto) for the financial year 2026-27 has been increased by 111% year-on-year to ₹5,939 crore to promote manufacturing of electric vehicles (EVs) in India.

However, the PLI allocation for making lithium-ion cells used in EVs and battery storage systems has been cut by 45% to ₹86 crore as companies like Ola Electric, Reliance Industries and Rajesh Exports run behind the designated schedules to make their gigafactories.

These developments come as automakers in the country continue to face troubles in import of rare earth magnets along with prospects of expensive lithium-ion cells import as China moves to remove its export subsidies.

Hisashi Takeuchi, managing director and chief executive at Maruti Suzuki, said that the GST reform had already put a strong growth path and the latest budget has some key moves to help localisation.

"Within manufacturing, strengthening of some key sectors like capital goods, semiconductors, rare earth and SMEs is a very thoughtful move that will help localize and secure our supply chain."

Concessions for lithium ion retained

The government has retained zero customs duty for importing equipment used in manufacturing of lithium-ion cells, which are used in making EVs. It has also extended a concessional 5% import duty on imports of lithium-ion cells themselves. Mint had reported on the possibility of this extension on 3 January.

Shailesh Chandra, president of Society of Indian Automobile Manufacturers and Tata Motors PV managing director and CEO, said these moves will help in promoting EVs.

“Enhanced support for electronic components manufacturing, setting up dedicated corridors for mining and processing of rare earth, along with initiatives to establish high-tech tool rooms and supporting container manufacturing, will develop supply chain resilience and help in streamlining exports,” Chandra said.

Harshavardhan Sharma, group head for automotive tech & innovation group at Nomura Research Institute, said the focus of the budget appears to be on supply chain initiatives. “EV OEMs and tier-1s should accelerate localisation strategies for motors, magnets, and power electronics to de-risk China-linked supply chains,” Sharma said.

Currently, India is fully dependent on imports of lithium-ion cells from China, South Korea and Japan. China constitutes more than three-fourths of the imports, with companies like CATL, BYD and Eve active in India. Japanese giant Panasonic and South Korean firms like LG are also active in the space.

With China moving to remove export tax relief in the next one year from the current 9%, Indian automakers face the prospects of higher lithium-ion battery prices, which can lead to higher prices of EVs. A lithium-ion battery makes up for more than one third of an EV’s cost.

Ola Electric is currently the only firm that has localised a part of its lithium-ion cell requirement. Companies like JSW, Reliance, Tata Agratas, Exide and Amara Raja have committed to build gigafactories with a cumulative capacity of more than 100GWh set to come into operation by 2030.

Rare earth corridors in mineral-rich states

The government has also unveiled an initiative to build rare earth mineral corridors in four states—Andhra Pradesh, Tamil Nadu, Kerala and Odisha — to aid companies that are willing to make rare earth magnets in India.

The announcement in the budget on Sunday follows the Union cabinet’s approval of a ₹7,280-crore fund to support the domestic production of rare-earth magnets.

Companies like Bharat Forge, JSW, Sona Comstar, Mahindra, Proterial and Midwest were among the names that had initially expressed interest to make such magnets in India depending on incentives.

Rishabh Jain, fellow at Council on Energy, Environment and Water (CEEW), said the budget finally marked the pivot from national policies and regulatory reforms to state-level execution via local value add.

“By anchoring supply chains in mineral-rich states, we are finally bridging the critical gap between upstream mining and downstream manufacturing,” Jain said. “Crucially, the budget backs this intent with hard fiscal support—specifically by extending Schedule XII tax deductions to exploration and exempting duties on processing machinery, which directly de-risks private entry.”