India's EV Drive Surges Ahead, But Incentive Costs Under Scrutiny
Overview
India's electric vehicle sector is accelerating rapidly, driven by government schemes like PM E-DRIVE and PLI programs boosting adoption, manufacturing, and public transport electrification. However, research questions the cost-effectiveness of these incentives compared to renewable energy projects, highlighting the impact of the country's carbon-intensive grid on EV climate benefits.
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Government Pushes EV Adoption and Manufacturing
India's electric vehicle sector is experiencing rapid progress, marked by increased adoption, public transport electrification, and domestic manufacturing expansion in 2025. The Union Ministry of Heavy Industries (MHI) reported significant momentum under the Prime Minister's Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme. Payment security for electric buses has been successfully established, and localization efforts are deepening through various production-linked incentive (PLI) programs.
Launched in September 2024 with a ₹10,900 crore outlay, PM E-DRIVE has become the government's primary demand-side incentive for electric mobility. By the end of December 2025, ₹1,703 crore had been disbursed, supporting the sale of over 2.1 million electric vehicles across all segments. The scheme surpassed its target for L5 electric three-wheelers well ahead of schedule, demonstrating swift electrification in last-mile and commercial transport.
Cost-Effectiveness Debate Intensifies
Despite the government's push, recent research has introduced critical discussions on the economic trade-offs. A paper from the Centre for Social and Economic Progress (CSEP) indicated that the cost per tonne of carbon dioxide avoided through passenger car electrification is substantially higher than that achieved through residential rooftop solar or offshore wind projects. This cost is, however, comparable to using green hydrogen instead of grey hydrogen.
Grid's Carbon Footprint Hinders EV Climate Benefits
The climate advantages of electric vehicles in India are currently limited by the nation's electricity grid, which remains heavily reliant on fossil fuels, accounting for nearly 75% of generation. This dependency amplifies the mitigation potential of renewable energy sources but diminishes the direct emissions reduction impact of vehicle electrification. Solar photovoltaic power, for instance, offers significantly cheaper emissions reductions, partly due to sustained policy support since 2010.
Policy Evolution and Future Direction
To address payment delays impacting electric bus deployment, MHI operationalized the PM e-Bus Sewa Payment Security Mechanism in October 2024 with a ₹3,435 crore outlay. This mechanism aims to protect manufacturers and operators from defaults for over 38,000 electric buses.
The PLI scheme for automobiles and auto components, valued at ₹25,938 crore, continues to anchor advanced manufacturing. As of September 30, 2025, it had attracted ₹35,657 crore in cumulative investment, generated nearly 49,000 jobs, and disbursed ₹2,322 crore in incentives, primarily for electric two-wheelers. The scheme requires a minimum 50% domestic value addition.
Experts like Shyamasis Das from CSEP suggest that while EV incentives are critical in a price-sensitive market like India, future support should focus on hard-to-electrify segments like trucks and buses. Directing incentives towards shared infrastructure, such as public charging stations, is also seen as a more cost-effective use of public funds. Complementing subsidies with stricter CO2 emission targets and fleet mandates is also advised. Moushumi Mohanty of the Centre for Science and Environment advocates for regulatory instruments like emission credits and mandates to ensure automakers increase EV portfolios steadily.
