India's EV Flip Flop
To EV, or not to EV, that is the regulatory confusion.
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That’s how much India has pumped into its electric vehicle ambitions since 2015, through FAME I, FAME II, the PM E-DRIVE scheme, PLI programmes, and dozens of state-level incentive packages designed to widen EV adoption before the market could do it on its own. That is a decade-long bet on cleaner roads, reduced dependence on imported fuel, and a manufacturing future built around batteries rather than petrol.
And it was working. In FY26, India’s passenger EV segment had its best year on record. Sales surged 84% to nearly 2,00,000 units across the country. Tata Motors dominated the category, Mahindra made meaningful gains, and Maruti Suzuki finally showed up with intent. EVs made up 4.3% of all passenger vehicle sales nationally. That’s modest, but atleast growing steadily in the right direction.
Then the states changed their minds.
Maharashtra, Uttar Pradesh, Tamil Nadu, and Rajasthan, four of India’s biggest EV markets, withdrew their purchase subsidies after hitting self-imposed sales caps. Karnataka and Madhya Pradesh went a step further, adding fresh road taxes on electric cars. Together, these moves are pushing up on-road prices at a moment when India can least afford to slow the EV momentum it has spent a decade building.
Let’s see what’s going on.
The Subsidy Exits
Each state had built expiry dates into its EV policy from the start. Maharashtra ran a 10% subsidy on the first 10,000 electric cars under its 2025 policy. Uttar Pradesh offered a 15% subsidy, capped at ₹1 lakh, for up to 25,000 vehicles since 2022. By March 2026, UP’s transport department had received 24,952 applications and disbursed ₹173 crore for 18,359 vehicles, and dealers on the ground confirmed that new customers were no longer eligible. The state declined to comment on whether the scheme would be extended. Tamil Nadu provided ₹10,000 per kWh plus ₹1.5 lakh for 3,000 cars annually since 2023. Rajasthan gave direct subsidies of ₹30,000–50,000 for the first 1,000 personal and commercial EVs each. All four have since closed the window.
The catch: these “targets” were about exhausting a subsidy budget, not building a self-sustaining market.
These four states together drove over 80,000 EV car sales in FY26, or more than a third of the 2,00,000 units sold nationally. Part of that surge was a last-minute buyer rush, as consumers scrambled to lock in incentives before the windows closed, consuming available funds faster than planned. Losing that support is more than a minor policy tweak. It is a structural shift in the cost of going electric across India’s most active EV markets.
Now Add a Road Tax
If the subsidy exit is one problem, a fresh road tax is the other.
Karnataka was once India’s self-styled EV capital. Home to a large base of Bengaluru’s tech-savvy early adopters and a state that had aggressively zeroed out EV taxes. That status took a direct hit on April 1, 2026. Under the Karnataka Motor Vehicles Taxation (Amendment) Bill, 2026, EVs now face a tiered lifetime road tax. 5% for cars priced up to ₹10 lakh, 8% for ₹10–25 lakh, and 10% above ₹25 lakh. The state’s transport department had reportedly missed its 2025–26 revenue target by 14%, a shortfall of roughly ₹2,100 crore, and pointed to the high volume of tax-exempt EVs as a major reason.
The new levy is expected to generate ₹250–259 crore annually for the state. But for buyers, the math stings. A Tata Nexon EV or Mahindra XUV400 (both in the ₹10–25 lakh range), will now cost ₹1.2–1.6 lakh more on-road in Bengaluru. Entry-level EVs face a ₹35,000–50,000 price hike.
And there is compounding problem too. EVs in India already cost ₹2–4 lakh more than equivalent petrol cars. Layering a road tax over a disappearing subsidy is a double hit on the single factor that determines whether a middle-class Indian buyer picks an EV or doesn’t, and that’s the sticker price on day one.
Delhi, to its credit, read the situation differently. Its draft EV policy proposes a 100% road tax waiver for electric cars priced up to ₹30 lakh, valid until March 2030. But Delhi is currently the exception, not the direction the country appears to be heading.
The China Playbook
To understand why India’s timing is off, look at what China got right.
China dominates global EV sales. BYD ships more electric vehicles than most national automakers sell cars of any kind. But that didn’t happen through market forces alone. Beyond purchase subsidies, China maintained a complete purchase tax exemption for EVs — worth up to 30,000 yuan (~₹3.5 lakh) per vehicle through 2025. BYD alone received 12.47 billion yuan ($1.8 billion) in government operational subsidies in 2025. That’s a 19.8% jump from the year before.
Crucially, Beijing paired demand-side incentives with decades of investment in lithium processing, battery manufacturing, and EV components. This gave Chinese OEMs the cost base to stay competitive even as buyer incentives tapered. India’s manufacturing ecosystem, by contrast, is still early-stage. Without that supply-side depth, Indian EV makers are far more reliant on demand-side support to remain affordable to buyers.
China is only expected to phase out its EV subsidy scheme around 2027, and only after EVs have achieved genuine cost parity with petrol cars. China’s EV share went from one in eight new cars in 2021 to one in four by 2022, and kept climbing as prices fell. The state stepped back only once the market could sustain itself.
India is removing the training wheels before the rider has learned to balance.
The Takeaway
Here is the bigger picture. India imports roughly 89% of its crude oil and spends over ₹18 lakh crore annually on petroleum imports, at nearly 3% of GDP. A large-scale shift to EVs is among the most credible long-term ways to trim that bill. The EV story was never purely about clean air. It was also about energy security, and every petrol car that stays on the road is a small vote against that goal.
But India’s car buyers are acutely price-sensitive. In a market where most new cars are sold below ₹15 lakh, a ₹1-2 lakh swing in on-road price is the difference between a sale and a walkout. The entire subsidy architecture existed to bridge that gap. Pull it before the market is ready, and the rational buyer does the math and returns to petrol.
The industry has been unambiguous about the stakes. Amit Bhatt, India MD at the International Council on Clean Transportation, warned that rising upfront costs could set back the green transition in mobility and called for stronger supply-side regulations like CAFE standards rather than just cutting demand support. Anurag Mehrotra, MD of JSW MG Motor India, was direct: state-level incentives are a critical driver of EV adoption, and sustained state support will be vital to achieving the government’s 30% EV penetration target by 2030. Tata Motors echoed the point: customer-centric state incentives are equally vital for mainstreaming of EVs.
India’s EV penetration sits at 4.3%. The government’s target is 30% by 2030. That gap doesn’t close without sustained support. With the central PM E-DRIVE scheme’s ₹10,900 crore outlay also set to expire in March 2026, India’s EV push risks losing its momentum precisely when it needs it most.
The long-term bet on EVs still makes sense. The import savings, the air quality gains, the manufacturing potential. It all adds up. But treating EVs as a new tax base the moment the segment shows early promise is precisely how you stall a transition that hasn’t found its own footing yet. The government at the centre and in the states, needs to borrow one page from Beijing’s playbook. Patience. Subsidies aren’t the problem. Pulling them before the market is ready is.
Until next time, ReadOn!