Union Budget 2026: Auto Industry Looks for a Policy Gear Shift to Drive EV Growth and Manufacturing Scale
Auto industry is actually at a defining crossroads as India approaches the Union Budget 2026. Electric vehicle adoption is gaining momentum; policy-driven reforms have resurrected pockets of demand, and domestic manufacturing aspirations are maturing. Still, structural issues such as affordability barriers in entry-level EVs and capital-intensive battery manufacturing, as well as more uneven demand recovery, persist for the sector. Car manufacturers and industry analysts are now hoping that the Budget 2026 will drive in a definitive gear shift, convincing balance between ‘here-&-now’ demand stimulus and industry depth for long-term manufacturing in order to aid India’s transition to cleaner mobility with near-global aspirational competitiveness.
How the Auto Industry Sees EV Adoption Accelerating
India’s EV overview is no longer just a story of something we’re experimenting with. In 2025, more than 2.3 million EVs were registered, or nearly 8 percent of the total vehicle market. This testifies to increasing consumer acceptance, better charging infrastructure and a more favourable policy support over the last few years. But adoption is still inconsistent across demographics. With luxury EVs and fleet models gaining traction, concerns of cost affordability are still holding steady the sales of passenger entry-level EVs and mass market two-wheelers.
Industry leaders say that if not addressed, this imbalance could hit the brakes on broader electrification. Lower-end EVs are key to driving up volume and hitting emissions targets, but with cost pressures increasing and price gaps with petrol cars narrowing, they’ve become less appealing for budget-minded buyers. For the automobile industry, the challenge now is to ensure that EV adoption expands beyond premium and fleet-driven segments.
Tata Motors Signals Strain in Entry-Level EVs
Tata Motors, a key player in the mounting electric vehicle (EV) landscape of India, has urged the government to provide focused incentives for entry-level EVs in its upcoming Budget. According to Shailesh Chandra, President, Electric Mobility Business and Corporate Strategy, Tata Motors Passenger Vehicles, while the GST reforms, repo rate cuts and tax modifications have brought a new lease of life for overall passenger vehicle demand, entry-level EVs’ sales are seeing pressure.
GST rationalization in the last year has led to a reduction in petrol vehicles, increasing competition for entry-level EVs,” Chandra said. The government’s interventions have supported the broader market, but not to the same extent for EVs, particularly at the low end of the market. These concerns reflect broader pressures being faced by the automobile industry, especially in balancing affordability with the of rising costs momentum for electric mobility.
Commercial EVs: A High-Impact Opportunity
Commercial electric cars are another major ask from Tata Motors under the PM E-Drive scheme. Commercial EVs are currently only 7 percent of overall passenger vehicle sales but represent a large portion (33-35%) of total passenger kms. This means their contribution is disproportionately impactful in the mitigation of emissions and fuel consumption.
Commercial electric vehicles were supported under the FAME-2 scheme, but are not covered under PM E-Drive. Industry officials say this omission misuses the environmental and economic advantages of electrification. Because a commercial vehicle on average covers five times the distance run by a personal car, pushing incentives to this sector could bring quicker reduction in oil imports and urban pollution. Incentivising this segment could deliver outsized environmental and economic gains for the automobile industry.
Luxury Car Makers Demand Rationalization of Customs Duty
At the other end of the market, luxury car manufacturers are also casting a hopeful glance towards Budget 2026 for policy relief. Luxury car maker Mercedes-Benz India has sought rationalization of taxes on imported cars to stimulate demand in the premium segment and aid in overall tax revenue generation.
At present, imported passenger vehicles below $40,000 enter the country with a basic customs duty of 70 percent, while those above $40,000 are charged a formidably high duty of 110%. “It could unlock suppressed demand as people who want these kinds of cars can’t really afford them at current high tax rates,” Mercedes-Benz India managing director and CEO Santosh Iyer said.
He also underlined the importance of macroeconomic stability, specifically pointing out steps to contain rupee depreciation, leading to increasing input costs being passed on by manufacturers in their prices. The industry, which lauded the reforms carried out by the GST last year, now expects an equivalent rationalisation of customs duties to support sustainable expansion across the automobile industry.
From Demand-Driven to Muscle Murk Manufacturing
Unlike the demand-side actions, Budget 2026 will likely see a clear prioritization of building critical mass for manufacturing in the country, including addressing redundant regulatory frameworks and infrastructural deficiencies. The Indian EV industry has moved beyond assembly operations and is witnessing the expansion of capacities in vehicles, batteries, and components. The key now is how to deal with all the high capex that’s been put into place, getting the supply chain ready and being efficient operationally when you get to volumes.
Insiders say long-term policy support is critical to translating India’s momentum on EV adoption into global manufacturing ascendancy. Without this, it is a struggle for domestic players to stay competitive amidst spiralling costs and import reliance.
Battery Production Is the Biggest Blocker
The battery is turning out to be the most crucial and fragile link in India’s EV value chain. India’s lithium-ion battery market is expected to expand at a compound annual growth rate of 35–40% up until 2030, Icra stated. Annual requirements are anticipated to grow significantly from 17.7 GWh in 2025 to more than 256 GWh by 2032.
But if India’s domestic manufacturing capacity doesn’t level up in time, India could remain a battery importer for many years to come. This leaves the industry vulnerable to fluctuations in currencies, geopolitical uncertainties and supply interruptions. Industry players are calling for a speedier localization, which they say can be achieved by giving clearer policy timelines and also by implementing the incentive schemes faster.
Policy Stability and Patient Capital Accessibility
Clarity is of the essence for the image of the Advanced Chemistry Cell (ACC) PLI scheme, say manufacturers. Though the motive behind the scheme is well-acknowledged, ambiguity regarding the implementation schedule and the disbursement of incentives has retarded investment decisions.
Battery production has large initial capital costs and long payback periods of over seven years. To execute projects, the company is looking for access to patient capital under longer and cheaper terms of financing. Budget 2026 is considered the right time to fill these funding gaps and to improve investor sentiment.
Infrastructure, Approvals and Skill Shortages
Execution struggles persist in slowing down projects across the EV ecosystem. Land acquisition, power linkage, environmental clearance and product testing, components of these schedules, often get delayed. Simplifying approval procedures and fortifying industrial foundations could greatly enhance execution efficiency.
Meanwhile, the shortage of skilled manpower in the sector is acute. With EV and battery plants scaling up, there is increasing demand for trained technicians, quality engineers and safety specialists. Industry-ready skilling programmes are being seen increasingly as a strategic must-have rather than a support function.
Creating a Circular and Sustainable Electric Vehicle Ecosystem
With batteries reaching higher volumes, recycling and end-of-life are suddenly strategic priorities. Unambiguous policy guidelines related to extended producer responsibility and investment in recycling infrastructure would be imperative for acquiring raw materials and reducing dependence upon importing the same.
A clear, circular economy framework could enhance India’s long-term sustainability objectives while reducing costs for manufacturers. Many industry stakeholders think that Budget 2026 can play a key role in setting the stage for this ecosystem.
A Make-or-Break Budget for India’s Automobile Transition
With EV adoption speeding up and manufacturing aspirations growing, the automobile industry is hoping for decisive interventions from the Union Budget 2026 with an execution focus. Be it targeted incentives to promote the entry-level EVs, customs duty rationalization, support for battery manufacturing or a clarity in policy, the decisions taken this year can well chart out the course of the sector over the coming decade. For an industry that is at the cusp of a makeover, Budget 2026 is generally perceived to be the economic gear shift that can steer India’s mobility story onto a bigger, more sustainable growth trajectory.
