Union Budget 2026 Expands Battery Manufacturing Incentives to Power India’s EV and Energy Storage Push

The global shift towards electrified transport and clean energy has fundamentally reshaped how countries design industrial policy. Battery manufacturing is increasingly viewed as strategic infrastructure, much like steel production was in the last century, underpinning long-term economic competitiveness and energy security. Against this backdrop, governments worldwide are reworking policy frameworks to address immediate market gaps while also reducing long-term geopolitical risks linked to concentrated supply chains.

India’s latest expansion of customs duty relief reflects this evolving approach. By extending exemptions on lithium batteries and related equipment, the government is using targeted fiscal tools not only to accelerate electric vehicle adoption but also to strengthen domestic manufacturing across a wider industrial base. The exemption on lithium batteries for EV infrastructure highlights how policy can simultaneously support technology uptake and build resilient local ecosystems.

Expanded Scope of India’s Battery Manufacturing Duty Relief Programme
Under Union Budget 2026–27, the scope of customs duty exemptions for lithium-ion battery manufacturing has been significantly widened, with benefits now extended until March 2028. The framework goes beyond electric vehicles to include battery energy storage systems (BESS), opening opportunities across multiple sectors of the economy.

Core exemption categories include:

• Capital goods for lithium-ion cell manufacturing, covering specialised equipment used in cell assembly and processing
• Machinery and components for battery energy storage systems used in grid-scale and industrial applications
• Equipment for processing critical minerals such as lithium and rare earths
• Automated and precision infrastructure for battery pack and component assembly

The extended timeline provides manufacturers with greater clarity on regulatory conditions. SIAM President Shailesh Chandra noted that the continued exemption of basic customs duty on capital goods used for lithium-ion battery manufacturing, along with concessional duty benefits for cells and parts used in EV and hybrid vehicles until March 2028, will help create a stronger and more predictable EV ecosystem.

This certainty addresses a long-standing challenge where policy unpredictability discouraged large capital investments. A clear horizon till March 2028 gives companies the confidence to plan plant construction, install equipment and invest in workforce training.

How India’s Battery Incentives Compare Globally
India’s incentive framework aligns with a broader global contest to build domestic battery capacity, though each region has adopted different tools to achieve this goal.

India’s approach stands out for prioritising capital goods exemptions over recurring production subsidies. This lowers entry barriers without distorting markets through ongoing support. Deloitte Partner Harpreet Singh said the extension of customs duty exemptions on lithium-ion cells and key inputs until March 31, 2028 offers much-needed policy continuity for the electric mobility ecosystem.

The government’s capital expenditure target of ₹12.2 lakh crore for 2026–27, roughly $146 billion, further strengthens downstream demand for batteries across infrastructure, transport and energy sectors.

Economic Impact of Extended Duty Relief
Industry estimates suggest the extended duty exemptions could reduce battery manufacturing costs by 15–20%, depending on project structure. The benefits flow through several channels.

Key cost advantages include:

• Savings on imported capital equipment
• Improved working capital efficiency by avoiding upfront duty payments
• Faster capital recovery through lower equipment costs
• Enhanced competitiveness for domestic manufacturers versus imports

Mahindra Group CEO and MD Anish Shah said the Budget focuses on improving India’s global competitiveness while enabling broader participation in economic growth. Beyond large players, the measures also support MSMEs by lowering barriers to entry in battery components and allied manufacturing. ACMA President Vikrampati Singhania highlighted that continued emphasis on MSMEs, clean mobility and exports will help the auto component sector navigate global challenges.

Impact on Manufacturing Decisions
With policy clarity until 2028, companies can confidently commit to long-term plans, including multi-year equipment contracts, skill development programmes, R&D facilities and deeper supply chain partnerships.

Applications Beyond the Automotive Sector
By extending exemptions to battery energy storage systems, the policy recognises that lithium-ion batteries are critical well beyond vehicles.

Grid-scale energy storage use cases include:

• Frequency regulation and grid stability
• Peak demand management
• Renewable energy integration
• Support for long-distance transmission networks

The allocation of 4,000 electric buses for Purvodaya and northeastern states further illustrates the government’s intent to broaden battery deployment. This alone represents an estimated 80,000–120,000 kWh of battery capacity.

Industrial and Commercial Opportunities
FADA President CS Vigneshwar noted that green mobility measures, combined with steps like excise relief on biogas-blended CNG and the India Semiconductor Mission 2.0, will help stabilise supply chains for modern vehicles.

Industrial applications include backup power for factories, data centre UPS systems, telecom tower batteries and off-grid solutions for mining and remote operations.

Critical Minerals and Supply Chain Security
Including mineral processing equipment under duty exemptions addresses one of India’s biggest bottlenecks. Tsuyo Manufacturing CEO Vijay Thakur said the focus on rare earths and EV components will support domestic electric motor manufacturing while reinforcing circular economy goals.

The framework supports development of lithium refining, rare earth processing for magnets, cobalt and nickel supply chains, and advanced recycling systems.

Strategic Advantages of Domestic Capability:

• Lower import dependence for raw materials and finished batteries
• Greater bargaining power with global suppliers
• Opportunities for technology transfer through FDI
• Export potential for both materials and finished systems

Multi-Fuel Transition and Biogas Integration
Alongside battery incentives, excise relief for biogas-blended CNG reflects a multi-technology transition strategy. This reduces over-reliance on a single solution and supports applications where batteries may be less practical.

Long-Term Competitiveness and Export Potential
With the global battery market projected to exceed $400 billion by 2030, India aims to secure a meaningful share through scale, technology development and supply chain integration. Mercedes-Benz India MD and CEO Santosh Iyer noted that higher infrastructure spending supports mobility demand while reinforcing EV-friendly policies.

Regional Export Opportunities Include:

• Automotive batteries for neighbouring EV markets
• Grid storage solutions across South Asia
• Industrial batteries for emerging manufacturing hubs
• Processed critical minerals for global supply chains

The extension of incentives until March 2028 gives manufacturers the runway to scale operations, build export relationships and integrate into global markets. For investors and partners, the policy offers long-term visibility and a strong foundation for collaboration across India’s evolving battery and EV ecosystem.