Electric vehicles (EVs) are now mainstream, accounting for one in five cars sold globally in 2023. In the first quarter of 2024, global EV sales rose by 25 percent year-over-year, sustaining a growth rate similar to 2022. The International Energy Agency estimated that electric cars would represent 45 percent of new car sales in China, 25 percent in Europe, and over 11 percent in the US in 2024. From January-November 2024, China led the global EV market, with 9.7 million of the 15.2 million EVs sold. Vietnam and Thailand have also seen substantial EV adoption, reaching 15 percent and 10 percent of sales, respectively, in 2023. Emerging markets like Brazil (3 percent), Indonesia (2 percent), and Malaysia (2 percent) show potential due to favorable policies. However, the discontinuation of purchase incentives poses a potential risk to the industry’s growth.
India, with a modest 2 percent market share, has relied on the Production Linked Incentive (PLI) Scheme to support domestic EV and battery manufacturing. Unlike most countries, India’s EV transition is led by two-wheelers—motorbikes and scooters. Here, we examine the role of policy in shaping India’s electric mobility landscape while drawing lessons from countries like China, the US, and others. Although significant progress has been made, the effectiveness of these policies in fully developing the EV ecosystem and addressing existing gaps warrants further examination.
India’s Policies
India’s national level EV framework under the aegis of the National Mission for Electric Mobility (NMEM) promotes the development of sustainable automotive technologies. This includes the Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME) schemes. FAME I (2015) aimed to promote EV adoption through subsidies for electric two-wheelers, three-wheelers (such as auto-rickshaws), buses, and hybrid vehicles, while FAME II (2019) shifted focus toward infrastructure development by incentivizing the establishment of charging stations and mandating higher localization requirements for subsidized EVs. Another cornerstone is the Production Linked Incentive (PLI) Scheme, which aims to boost domestic manufacturing of Advanced Cell Chemistry (ACC) batteries and EV components through subsidies, thereby reducing import dependence. FAME I and FAME II were considered successful by the government and observers. FAME III was expected to be launched in 2024 while addressing FAME II's shortcomings. The PLI Scheme, on the other hand, is unlikely to be extended beyond the fourteen sectors currently included and is expected to be modified.
Complementing these initiatives, the government has introduced measures like reducing Goods and Services Tax (GST) on EVs from 12 percent to 5 percent, exempting EVs from permit requirements, and allowing electricity to be sold as a service for EV charging. Budget provisions such as additional income tax deductions on loans for EV purchases further incentivize adoption. Charging infrastructure development, such as charging stations at 25 km intervals on highways encouraged by offering tax rebates, is also a priority.
State governments have also played a critical role by creating tailored policies that include demand-side incentives, research and development (R&D) support, labor incentives, and infrastructure development. States such as Karnataka, Maharashtra, and Tamil Nadu, which lead in EV registrations, have introduced comprehensive policies to attract investments and foster local EV ecosystems.
Policies in Other Countries
The global push toward EV adoption is evident in policies implemented by major economies like the US, China, and the European Union. The U.S. Inflation Reduction Act (IRA), China’s New Energy Vehicles Act (NEV), and the EU’s Net-Zero Industry Act (NZIA) reflected a global shift toward clean energy and electric mobility while showcasing varied strategies and implications for international trade and competition. Each region’s approach corresponds to its unique priorities, yet common themes include financial incentives, infrastructure development, and strategic trade policies.
The US has leveraged policies such as Corporate Average Fuel Economy (CAFE) standards and a national subsidy program to promote EV adoption. The IRA allocated $370 billion toward climate and clean energy investments, emphasizing domestic EV production. Protectionist measures, such as raising import tariffs on Chinese EVs to 100 percent as of May 2024, underscore efforts to bolster the US’s competitive position in global EV markets. However, the administration of US President Donald Trump has set out to dismantle the IRA.
The NZIA aims to enhance the competitiveness of its net-zero industrial base, particularly in battery and storage technologies. Complemented by the European Critical Raw Materials Act, the NZIA secures supply chains and diversifies partnerships to mitigate reliance on non-EU resources. The EU has also imposed tariffs on Chinese EVs, citing concerns over unfair subsidies and competitive practices in 2024.
China’s NEV policy is integral to its leadership in electrification. Characterized by extensive subsidies, investments in battery technology, and regulatory mandates, it captures significant portions of the lithium-based battery supply chain.
China’s dominance in EV production aligns with its strategic priorities to upgrade its automotive industry and combat air pollution. China is now the leader in batteries for electric vehicles and solar panels. It has capitalized on expertise in lithium-ion battery manufacturing, gained from producing consumer electronics, to solidify its position in the EV market.
Policy support in other countries includes support for the purchase of EVs and the roll-out of charging infrastructure, while others try to disincentivize the use of internal combustion engine cars. Direct support measures include purchase subsidies, import tax exemptions, and purchase and operational tax exemptions for electric vehicles. Other G20 countries, except Saudi Arabia and South Africa, have implemented mechanisms to support EV adoption. For instance, France and Italy employ indirect measures like the “malus” system, which imposes higher taxes on vehicles with high CO₂ emissions.
Policy Effectiveness and Challenges
Can countries like Brazil, India, or South Africa replicate China’s green industrial policy? These three emerging economies have structurally different automotive industries, domestic preconditions, policy and enterprise responses, and preliminary industrial development outcomes.
In India, national policies like FAME and local initiatives have supported charging infrastructure and facilitated the emergence of domestic EV manufacturers like Tata Motors. Since India has homegrown automobile brands, the level of investment in the EV supply chain is higher than in Brazil and especially South Africa. The Indian EV market is still tiny compared to the Chinese: 250 million units were sold in China instead of 0.6 million in India in 2019. While the Indian initiatives outlined above have spurred growth, critical questions remain about their sufficiency in fully developing the EV ecosystem.
While India has established R&D centers to advance EV technologies, its academic output and patenting activities remain low compared to China and the US. The typical lifecycle of a disruptive industry involves innovators, early adopters, and subsequent scaling. In India, the EV sector has reached a critical inflection point, with scaled manufacturing expected within the next few years. Government measures, such as customs duty cuts on lithium-ion batteries and capital goods for EV manufacturing, are poised to accelerate this transition. This year’s budget provided customs duty exemptions to 25 critical minerals, and the Critical Minerals Mission has been established, which is likely to help in battery development.
India’s coal-dependent electricity mix also hampers EVs’ environmental benefits. Addressing these challenges will require substantial investment in renewable energy and the decarbonization of India’s power sector. Similarly, enhancing R&D capabilities and expanding affordable charging infrastructure are necessary to sustain momentum. Globally, competition in the EV market has led to geopolitical tensions. The US and EU’s tariff hikes on Chinese EVs and China’s export restrictions on critical minerals illustrate the intersection of industrial policy with international trade dynamics.
Conclusion
In the first eleven months of 2024, 70 percent of global EV and hybrid sales took place in China. At the same time, China’s trade surplus was at a record high of nearly $1 trillion. The new US administration’s tariffs, imposed on China, among others, as well as on specific sectors like iron, steel, and aluminium, are an attempt to reshape these markets. Earlier, the EU has imposed tariffs on Chinese EVs, citing unfair subsidies and competitive practices. Other concerns regarding Chinese EVs exist in the EU, the US, and elsewhere. Brazil, Turkey, India, and Indonesia have imposed larger barriers on China’s exports, fearing their nascent industries might wither against the Chinese onslaught. China, too, retaliated by banning the export of critical minerals and now restricting exports of machinery for electronics, solar panels, and EVs.
India’s EV policies reflect a sustained effort to transition to green energy, with initiatives like FAME II, PLI schemes, and state-level incentives forming the backbone of its strategy. However, challenges such as a nascent battery industry, inadequate charging infrastructure, and coal-intensive electricity generation must be addressed to realize the full potential of EV adoption. Moreover, Indian consumers are price sensitive, and electric cars are more expensive.
Small and Medium Enterprise (SME) support will be vital for realizing the full potential of the EV transition. SMEs, which form a significant portion of India’s automotive sector, require tailored incentives to strengthen the EV component supply chain. Replicating China’s green industrial policies poses challenges for emerging economies like Brazil, India, and South Africa due to structural differences in their automotive industries and policy environments. Brazil has a large auto industry dominated by foreign original equipment manufacturers (OEMs), serving as South America’s assembly hub. South Africa’s smaller industry focuses on exports to Europe, relying heavily on imported components with minimal domestic innovation. India has the strongest automotive component sector (primarily ICE) among the three countries, with domestic firms generating 70 percent of revenue.
India’s EV transition trajectory also depends on geopolitics, including access to critical minerals, technology, and financing. Ensuring this transition aligns with broader decarbonization goals will require coordinated efforts across policy, industry, and academia and international cooperation to secure resources and technology. By addressing these challenges, India can position itself as a leader in the global shift toward sustainable mobility.
As the global EV landscape evolves, India’s industrial policy must balance immediate incentives and long-term sustainability goals. Drawing lessons from China’s market strategies, the US’s incentive structures, and the EU’s regulatory frameworks, India can refine its policies to create a competitive and environmentally sustainable EV ecosystem. Strategic investments in infrastructure, partnerships with global OEMs, and fostering local innovation will be crucial in shaping India’s electric mobility future. As India continues refining its policies, these lessons can guide effective implementation that supports economic growth and environmental sustainability.
Saon Ray is a Professor at the Indian Council for Research on International Economic Relations (ICRIER), New Delhi. She is the co-editor of A Primer on Electric Vehicles in India: A Machine-Generated Literature Overview 2025th Edition (Springer, 2024).
India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.
© 2025 Center for the Advanced Study of India and the Trustees of the University of Pennsylvania. All rights reserved.