Going into the Union Budget 2026-27, expectations from the automobile sector were decidedly high. While the budget was not hostile towards the sector, it was not ambitious either. The focus remained firmly on increasing manufacturing depth, rather than enhancing adoption velocity or providing some much-needed policy clarity. The over 1% correction in the Nifty Auto Index on 1 February reflected this disappointment.
India’s automotive sector, which had been buoyed by exports and accelerated electric vehicle (EV) adoption, has recently hit one speed-breaker after another.
EVs lost some of their tax-edge over internal combustion engine (ICE) vehicles after the goods and services tax (GST) rates on the latter were rationalized; competitive pressures are set to intensify with the India-EU free trade agreement, and with global original equipment manufacturers (OEMs) sharpening their India playbooks; South Africa—a key export destination for Indian automobiles—is contemplating doubling import-duties to 50%; and raw material prices are on the rise as steel prices recover on the back of safeguard duties.
Against this backdrop, the hope was for a clear policy nudge, if not a shove, towards EVs, hybrids, and the broader automobile ecosystem. Hybrids continue to operate in a grey zone—neither fully incentivized, nor discouraged. In a market like India, where affordability still trumps ideology, clearing out that ambiguity matters.
The sector’s expectations can be grouped into three broad categories—a sharper fiscal incentive to offset EV price parity challenges post-GST rationalization, clear signalling on hybrids as a transition technology, and some recognition that increased import competition (especially from Europe) would require a faster domestic demand ramp-up. None of these found explicit mention.
Policy continuity
But what the sector got instead was continuity. Production-linked incentive (PLI) outlays for automobiles and auto components were raised meaningfully to ₹5,940 crore in FY27 BE (budget estimates), up from ₹2,819 crore in FY26 BE, clearly signalling that localization and scale remain priorities. From a supply-side perspective, especially against the backdrop of recent production challenges due to China’s dominance on the supply chain, this is reassuring.
But for demand-side adoption, particularly for high-growth EVs, the budget felt thin. The flagship PM E-Drive (Electric Drive Revolution in Innovative Vehicle Enhancement) scheme saw its allocation rise to ₹1,500 crore in FY27 BE, from ₹1,300 crore in FY26 RE. While this is an increase, the context is key. The original FY26 BE allocation for the scheme was ₹4,000 crore. Relative to that benchmark, and relative to expectations of a renewed push, the latest budget allocation looks more like a patch than a pivot.
Of course, one could argue that the heavy lifting has already been done. EV penetration is rising, battery costs are easing, and charging infrastructure is expanding. The broader rise in transport and urban capex also provides indirect tailwinds to auto demand, and the manufacturing depth incentives should eventually support margins. But such indirect support makes for a slower, more market-led transition rather than a policy-accelerated one.
