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Budget 2026 marks a decisive shift in India’s Auto and EV landscape by lowering battery input costs, deepening semiconductor capability, and advancing cleaner logistics, all while aligning with the climate and modal shift priorities outlined in the Economic Survey. A central thrust of the Budget is the push for stronger Domestic Value Addition (DVA) in the EV supply chain, which strengthens India’s long-term energy independence by building local capacity across mineral processing, cell manufacturing, and recycling.
This reduces reliance on strategic imports and stabilises exposure to global commodity volatility. In parallel, the recently concluded India–UK Free Trade Agreement introduces an external growth catalyst for the sector by creating phased, quota-based duty reductions on select UK-origin vehicles and expanding market access for Indian automotive exports.
This opens new headroom for OEM sales growth in premium segments and enhances export opportunities for components and EV subsystems, while protecting the domestic mass-market EV ecosystem. Together, these developments position the industry for a more resilient, self-reliant, and globally integrated growth trajectory.
At the core of the Budget’s EV strategy is a continued push to compress the cost of energy storage. The extension of basic customs duty exemptions on capital goods for lithium-ion cell manufacturing, now broadened to battery energy storage systems and combined with concessional duty treatment on key inputs, marks a clear policy signal to shift from an assembly-oriented model to deeper, cell-centric value addition.
Complementing this is the custom duty exemption on critical minerals such as lithium and cobalt, together reducing cell and pack input costs and strengthening the business case for domestic gigafactories. Crucially, this cost-down trajectory aligns with NITI Aayog’s long-term electrification outlook—where EVs are projected to reach nearly 90 per cent of new vehicle sales by 2047—by lowering the total cost of ownership early in the curve and bringing mass-market segments into the adoption window.
The launch of India Semiconductor Mission 2.0 expands the country’s semiconductor ambition beyond fabs and ATMP units to include equipment, materials, full-stack Indian design IP, and resilient supply chains. Supported by industry-led research and training centres, ISM 2.0 is paired with a significant scale-up of the Electronics Components Manufacturing Scheme (ECMS) to INR 40,000 crore. This positions India to localise high-value EV subsystems—power electronics, controllers, sensors, battery management systems—that today remain import-dependent.
Budget 2026 places major emphasis on logistics decarbonisation and reliability—critical for automotive supply chains. The operationalisation of 20 new national waterways, establishment of ship-repair ecosystems in Varanasi and Patna, and launch of a coastal cargo promotion scheme targeting a 12 per cent modal share for coastal and inland water transport by 2047 work collectively to shift cargo away from carbon-intensive road freight.
A new east–west dedicated freight corridor connecting Dankuni and Surat aims to optimise long-haul flows for minerals, components, and finished vehicles. For OEMs and suppliers, an “inland-first” logistics approach—multimodal nodes near plants, barge-compatible packaging, and synchronised turnaround times—can deliver measurable Scope-3 reductions alongside more predictable freight cycles and lower delivered costs.
The auto-components industry, with a turnover of about INR 6.73 lakh crore in FY25 and a US$453 million trade surplus, enters the Budget cycle on strong fundamentals. Budget 2026 builds on this momentum with MSME-focused equity vehicles, augmentation of the Self-Reliant India (SRI) Fund, and deeper usage of the TReDS invoice-discounting ecosystem to unlock capital for Tier-2 and Tier-3 suppliers to invest in tooling, automation, and quality systems.
Climate alignment remains central: the waterways push, coastal cargo incentives, and freight corridors support emissions-efficient logistics, battery-related customs relief accelerates EV adoption, and port digitisation enhances the ability to quantify Scope-3 reductions—important for investor-grade transition plans, global OEM partnerships, and export credibility.
The article concludes that by combining battery-cost relief, semiconductor deepening, logistics decarbonisation, and supplier-side capital support, Budget 2026 accelerates EV adoption, expands domestic value addition, and builds a more resilient and climate-aligned auto and EV supply chain—moving India closer to a self-reliant, decarbonised mobility economy.
This article first appeared in the Economic Times on 1 February 2026.
