Electric Mobility in India: Analysis of Incentives Offered by State Governments to the EV and EV Component Manufacturers

1.Introduction

The automobile industry globally is at a transformation stage, accelerated by depleting reserves of fossil fuels, rising costs of conventional fuels, evolving EV regulations and rapidly growing environmental concerns. With just half a decade remaining to achieve India’s ambitious goal of transforming 30% of India’s vehicle fleet into electric vehicles, a decisive and well-coordinated effort among all stakeholders will be crucial to gain the required momentum. 

1.1 Central Government Incentives

The Government of India has introduced a host of EV regulations, policies and schemes for transport electrification, marked by the implementation of Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles (FAME) schemes (I and II) & Production Linked Incentives for EV industry. Complementing this there has been a reduction in the Goods and Services Tax (GST) on electric vehicles (EVs) to 5%, accompanied by an income tax exemption of up to INR 1,50,000 on interest payments for EV loans. In addition to these measures, various EV-related guidelines and notifications have been introduced, addressing EV charging standards, the delicensing of EV charging services, tariff capping for charging infrastructure, model Development Control Regulations (DCR) and building codes for EV charging. As a result, EV regulations in India are also gradually evolving. 

1.2 Initiatives by State Governments

Transportation, being a concurrent subject, empowers states with the authority to wield various policy and implementation tools essential for driving the shift towards electric mobility. Beyond aiding the on-ground execution of central government directives and initiatives, most state governments have taken an additional stride by adopting and implementing independent policies tailored to promote electric mobility.

Commencing with the announcement of the Karnataka Electric Vehicle and Energy Storage Policy in 2017, a total of 26 states have either issued notifications or drafted Electric Vehicle (EV) policies. These state-specific EV policies exhibit a wide range in terms of their scope and duration, with the majority having a validity period of five years from the date of notification. The implementation of these policies is led by different departments across states, with the Department of Industries often serving as a common nodal agency entrusted with formulating and executing EV policies in multiple regions. 

The policy incentives and measures introduced by the state governments can be categorised into three key areas – 

  • Consumer demand incentives
  • Charging infrastructure incentives 
  • Industry incentives

Our energy lawyers in India have authored this article to highlight the industry incentives geared towards electric vehicle manufacturers, EV battery producers and ancillary companies. These incentives are designed to stimulate the production of EVs and components within the EV value chain. They are provided in the form of capital and infrastructure subsidies, as well as support for human resources and research development which includes fiscal support for setting up industries, promoting innovation as well as research and development, and skilling the workforce to improve the industrial outlook.

2.Industry Incentives

The central government has introduced a production-linked incentive (PLI) scheme to bolster the automotive sector and EV manufacturers. However, no specific incentives for the EV industry have been introduced by the central government. 

EV policies of various states provide for specific incentives for EV manufacturers and EV component manufacturers with certain states providing incentives in line for other industries while some states have provided additional incentives by designating EV-related industries as a “thrust sector” or a “priority sector” which usually includes manufacturing and primary industries important for the development of basic needs of the state and country. The section below analyses and highlights features of EV policies of the states. The EV policies covered in this article have been identified based on being the most comprehensive EV policies in India, focusing on supply-side incentives. 

2.1 Capital Subsidies for Industrial Development 

State governments offer capital subsidies structured in tiers to offset high upfront setting-up costs. These subsidies cater to industries of various sizes, ranging from micro, small, and medium enterprises (MSMEs) to ultra-mega projects. The attached table below explains the capital subsidies provided for under EV policies of certain states.

 

States Maharashtra Tamil Nadu Uttar Pradesh Rajasthan  Telangana
  • Capital Subsidy
  • All the benefits under ‘D+’ category (as defined under the Package Scheme of Incentives, 2019) of mega projects/other categories will be provided to EV industry irrespective of location of manufacturing unit in the state.
  • Reimbursement of SGST: 100% of the SGST paid on the sale of EVs manufactured, sold and registered for use in the State will be reimbursed to the manufacturing companies. The reimbursement will be given for sales by manufacturers effective  till 31.12.2030. The reimbursement will be given up to 100% of the eligible investment.
  • Capital Subsidy: eligible investments made till December 31, 2025 can avail capital subsidy of 15% over a period of 10 years, provided, the cost of land should not exceed 20% of eligible investment.
  • EV Battery Manufacturing: higher capital subsidy of 20% of the eligible investment over 20 years in cases where manufacturing units are engaged in EV battery manufacturing.
  • 1st two Integrated EV Projects and 1st two Ultra Mega Battery Projects: 30% of eligible fixed capital investment, max INR 1000 Cr per project, provided over 20 years.
  • 1st five Mega EV Projects and 1st five Mega Battery Projects: 20% of eligible fixed capital investment, max INR 500 Cr per project, provided over 10 years.
  • Large EV Projects and Large Battery Projects: 18% of eligible fixed capital investment, max INR 90 Cr per project, provided over 10 years.
  • MSME Projects: 10% of eligible fixed capital investment, max INR 5 Cr per project, provided over 2 years.
  • Electric Vehicle manufacturing has been identified as a ‘Thrust Sector’ under Rajasthan Investment Promotion Scheme – 2019 for provision of subsidies under which investments equal to or above INR 25 Cr. include:
    1. 5% Interest Subsidy on term loans for plant & machinery investment from recognised financial institutions for five years, capped at INR 1 Cr. per year.
    2. Capital Subsidy equivalent to 25% of the investment on plant & machinery, with a maximum limit of INR fifty lakh.
  • 20% of investment up to INR 30 Crores for Mega enterprises.

2.2 Tax Exemptions and Land-Related Concessions

In addition to capital subsidies, states have been providing fiscal incentives such as tax exemptions or reimbursements of the State Goods and Services Tax (SGST) and interest subsidies on loans as part of their industrial promotion subsidies. Similarly, different state EV policies are focussing on reducing the land purchase and registration cost by granting subsidies on land costs, fee waivers for agricultural to industrial land conversion, and exemptions on stamp duty and registration charges.

 

States Maharashtra Tamil Nadu Uttar Pradesh Rajasthan Telangana
Tax Exemptions & Industrial Subsidies –  –  Stamp Duty reimbursement on purchase/lease of land shall be provided post commencement of commercial production at following rates –

a) 100% to Integrated EV Project & Ultra Mega Battery project anywhere in UP

b) 100% in Poorvanchal & Bundelkhand region, 75% in Madhyanchal & Paschimanchal (except GHZ & GBN district) and 50% in GBN & GHZ district to Mega/Large/MSME projects as defined in the policy
  • Investment Subsidy of 75% of State tax due and deposited, for seven years.
  • Exemption from payment of 100% of Market Fee (Mandi Fee) for seven years.
  • Exemption from payment of 100% of Stamp Duty on Land Tax for seven years.
  • Exemption from payment of 100% of conversion charges payable for change of land use and conversion of land.
  • 100% net SGST reimbursement capped at 5 Crore per year with a cumulative cap of 25 Cr. over a period of 7 years for Mega Enterprises.
  • Reimbursements of 100% on first and 50% on second transaction of Stamp Duty/Transfer Duty/ Registration Fees.
  • Exemption from payment of 100% of Market Fee (Mandi Fee) for seven years.

2.3 Infrastructure Concessions and Subsidies

Infrastructure-related subsidies play a key role in lowering operational costs, primarily by offering concessions on electricity charges. Therefore, EV policies of various states are providing supplementary subsidies on Electricity Duty and power tariffs.

 

States Maharashtra Tamil Nadu Uttar Pradesh Rajasthan Telangana
Infrastructure concessions and subsidies   Projects will be provided 100% exemption on electricity tax for a period of 5 years on power purchased from the Tamil Nadu Generation & Distribution Corporation Limited (TANGEDCO) or generated and consumed from captive sources.   Exemption from payment of 100% of Electricity Duty for seven years
  • Power Tariff Discount: 25% for 5 years capped at 5 Cr.for Mega Enterprises.
  • Electricity Duty Exemption: 100% for 5 years capped at 0.5 Cr.

3. Recommendations on Industry Incentives 

3.1 Accelerate the deployment of financial incentives: The significant time lag between policy notification and actual implementation in various states poses a notable impediment to the success of initiatives for EV adoption. States must expedite the execution of measures such as road tax exemptions, ensuring swift momentum for EV adoption. Establishing single-window mechanisms for availing incentives and providing clarity on redemption processes will contribute to creating a seamless experience for prospective EV buyers.

3.2 Provision of Plug-and-Play Facilities: States aiming to attract mid-sized manufacturing in the EV sector can enhance their appeal by offering readily available industrial land parcels and shared infrastructure facilities. This strategy minimises setup costs for companies, making the location more attractive for investment.

3.3 Value Chain Specialisations: While state EV policies generally encourage the entire EV industrial ecosystem, some states provide extra incentives for strategic industries like battery manufacturing. A focused approach on specific components of the EV value chain will allow states to become key hubs, fostering industrial growth and employment generation both nationally and globally.

3.4 Labour Force Training: To benefit both incoming young workers and experienced individuals in the auto industry, governments should standardise skill development and certification processes, ensuring industry-wide norms. This not only reduces potential economic shocks to communities but also enhances overall resilience from economic downturns.

3.5 Targets for EV Manufacturing: In addition to incentivising consumers, states can guide automotive manufacturers toward an electric transition. Drawing inspiration from schemes in China and California, states can set targets requiring manufacturers to achieve a specific share of EVs in their annual production or sales.

3.6 Support for Industry-Academia Partnerships: State policies often emphasise incentives for skill development and research but fall short in promoting ties between industry and academia. To bridge this gap, state governments can play a pivotal role by establishing autonomous bodies. These agencies can form associations involving academics, researchers, manufacturers, and industry bodies dedicated to the EV industry. Further, strategic regional development that brings together leading academic and research institutes with industrial facilities can create positive feedback loops, attracting productive companies and a talented workforce, and ultimately forming robust industrial clusters.

Conclusion

To summarise, India’s electric mobility sector is poised for growth with robust incentives from state governments. At the same time, overcoming challenges such as infrastructure gaps and policy implementation delays through streamlined processes and proactive governance will be vital to continue and accelerate this growth, contributing to the country’s ambitious goal of transforming 30% of India’s vehicle fleet into electric vehicles by 2030.