Monday | Jun 23 2025 | 07:47:29 PM
While Europe and the US wrestle with the uncertainties of tariff wars, India is charging ahead with a bold and strategic push to electrify its transportation sector, setting a clear course for the future of mobility. As a result of a combined effect of encouraging government policies, rising awareness about environmental issues, lower running costs, and a global shift to more environmentally friendly fuels, India’s Electric Vehicle (EV) segment has been growing a brisk pace, touching nearly 2 million units in the financial year ended on March 31,2025.
Over the past few years Indian government, as a part of its goal to cut fossil fuel imports by increasing EV penetration to 30 per cent by 2030, has taken a series of transformative initiatives to accelerate the EV adoption in the country. Most significant among them is the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicles in India (FAME) scheme, introduced in 2015. Its successor the FAME-II program, which started in April 2019, took the mission further by prioritising electrifying public and shared transportation.
Building on the success of FAME-II, the government launched the PM E-Drive scheme in September last year. This two-year programme aims to accelerate the adoption of cost-effective and eco-friendly transportation solutions across the country. According to data released by the ministry, the scheme has already driven the sale of over one million electric vehicles nationwide.
Despite offering numerous economic and environmental advantages, India’s journey towards achieving a 30 per cent EV penetration by FY2030 comes with some formidable challenges and complex roadblocks.
Scaling up EV recharging infrastructure across the country and raising the domestic battery production capacity are two most critical challenges in accelerating the nation’s transition to electric mobility.
These challenges also unlock significant opportunities to both domestic as well as foreign investors to capitalise on the increasing demand across EV value chain, including batteries, charging stations, solar and energy components, and a wide range of supporting technologies.
With a stable policy framework, a rapidly growing domestic market, and robust economic growth supported by a younger population, India presents a compelling case for global investors seeking attractive returns.
India's attractiveness is further boosted by ongoing tariff tussle going between the US, Europe, and China, which is forcing many global giants to look for alternative avenues for investments and sourcing.
Industry captains in India believe China +1 strategy adopted by global companies to diversify sourcing along with concerted efforts by developed countries to promote greener fuels and higher emphasis on ESG factors by global fund houses will drive a substantial surge in investments into companies operating across the EV ecosystem.
Key stakeholders are concerned that punitive tariffs imposed by the US on imports from some Asian countries, particularly China, which has significant spare manufacturing capacity in the EV space, might result in higher dumping, undermining the efforts to strengthen and scale up local EV production capabilities.
Contrary to this, some raise concerns about the short-term surge in imports, viewing it as a potential drawback. However, as the government strives for the development of a comprehensive EV ecosystem in the country, it's crucial to balance the short-term requirements with the long-term goal of domestic manufacturing.
Driven by government initiatives such as the Production Linked Incentive (PLI) scheme, which aims to boost domestic manufacturing of advanced automotive technology products, batteries, and components, the sector is likely to attract significant investments in building and developing the entire EV ecosystem in the country.
These government-backed initiatives will encourage companies to have minimum percentage of domestic value addition (DVA) in imports, which can be gradually scale up in the next 3 to 5 years.
Notably, pay-outs under the PLI scheme are directly tied to companies’ ability to increase their DVA, further reinforcing this objective.
Besides this, the country’s battery and other energy storage related manufacturing capacity falls short of meeting the surging demand from automakers, who are rapidly ramping up EV launches across the country.
The increased demand for batteries has prompted several Indian companies, such as Amara Raja, Ola Electric, Rajesh Exports, Exide Industries, Reliance Industries, and GODI India, to set up giga-factories in the country to manufacture lithium-ion cells.
To bolster domestic manufacturing of lithium-ion (Li-ion) batteries and enhance EV technology, the Indian government extended basic customs duty exemptions in the Union Budget 2025 to 35 additional capital goods essential for EV battery production.
As the country’s entire EV ecosystem, including OEMs, battery manufacturers, charging infrastructure providers, and ancillary service providers, poised for rapid growth, its stable economic environment, rising income levels, and expanding consumer base collectively enhance its attractiveness as a premier investment destination, particularly for ESG focussed funds seeking to promote the usage of cleaner fuels.
The above article has been written by Rahul Shresth, Executive Director at Avener Capital.
