Can HEVs shape India’s hybrid cars strategy?

HEVs can reduce diesel dependence as EVs scale

The upcoming Union Budget FY27 offers a pivotal opportunity to accelerate India’s clean mobility transition by positioning hybrid electric vehicles HEVs as a practical complement to battery electric vehicles BEVs. HEVs remain a small market slice but are gaining momentum. Of 4.3 million cars sold in FY25 0.1 million were hybrids 2.4%. Sales doubled in Q1 FY26 to nearly 26,500 units a 147% year on year growth aided by state tax waivers. By mid-year volumes crossed 52,000 units with Toyota accounting for 80%.

Consumer sentiment reinforces this. Grant Thornton Bharat festive season survey shows 38% of respondents prefer HEVs ahead of petrol 30% and BEVs 21%. Buyers cite fuel efficiency and convenience particularly in tier 2 and tier 3 cities where EV charging infrastructure remains sparse. With over 15 models launched and eight more expected by March 2026 automakers are pivoting towards practical greener options.

In FY25 HEVs rose to 2.4% alongside increasing BEV penetration proving HEVs can reduce diesel dependence while BEV adoption scales. States offering HEV incentives also reported robust BEV growth.

Despite growing interest HEVs face a price disadvantage. While BEVs enjoy 5% GST the GST Council’s September 2025 decision placed HEVs in a 40% slab compact HEVs attract 18%. This limits HEVs to premium segments the most affordable option costs INR 16.8 lakh about INR 5 lakh more than a comparable petrol car. With uneven charging reliability outside metros HEVs deliver tangible savings without range anxiety.

Pre-Budget expectations

• Emissions based taxation
  Shift to CO2 outcomes. Calibrated GST relief for verified fuel efficient HEVs would acknowledge their decarbonisation contribution.
• PLI style incentives
  Extend localisation benefits to HEV motors and batteries. This would reduce costs and deepen supply chains.
• State alignment on road tax
  Encourage differential taxes linked to emissions. UP’s waiver which drove registrations fourfold illustrates the impact of price signals.
• Verification
  Fund independent platforms to certify fuel economy for tax credits ensuring benefits align with performance.
• Green financing
  Introduce priority lending for manufacturing and fleet norms rewarding lower CO2 per kilometre.

A hybrid inclusive pathway supports India’s multi powertrain transition biofuels CNG HEVs and EVs delivering faster emissions reductions. Budget FY27 can make it possible.

This article first appeared in the Financial Express on 19 January 2026.

Learn more about how our Automotive & EV services can help you

Learn more