Deloitte India Calls for PLI Scheme Revamp in Budget 2026 to Unlock Electric Vehicle Growth

Deloitte India has urged the government to revamp the Production Linked Incentive (PLI) scheme for automobiles in Budget 2026, arguing that changes could remove significant barriers for electric vehicle manufacturers and accelerate green mobility adoption across the country. The consulting firm's recommendations come as the current scheme faces challenges in achieving its intended objectives.

Limited Success Under Current PLI Framework

The PLI scheme for automobiles, designed to promote advanced technology and zero-emission vehicles, has demonstrated limited effectiveness since its launch. According to Deloitte India Partner Sheena Sareen, the scheme's performance has been disappointing despite significant industry interest.

Key Barriers Hindering Participation

Sareen identified two primary obstacles preventing broader participation in the PLI scheme. The domestic value addition requirement of nearly 50% has proved particularly challenging for manufacturers due to the absence of local production capabilities for critical components such as batteries and rare earth magnets. Even after government concessions, companies continue to struggle meeting these norms because essential inputs remain unavailable domestically.

The investment threshold presents another significant hurdle for potential participants:

Many firms, particularly smaller players and startups, find these investment commitments difficult to achieve given uncertainties in scaling up manufacturing operations.

Precedent for Scheme Modifications

Deloitte's recommendations draw from successful revisions in other PLI schemes across different sectors. Sareen noted that electronics and pharmaceuticals have seen successive versions of their respective PLI schemes that broadened coverage and relaxed conditions, enabling more companies to benefit from the incentives.

The success of related initiatives will also prove critical for the electric vehicle ecosystem:

• Advanced Chemistry Cell (ACC) PLI scheme implementation
• Recently launched rare earth magnet PLI scheme
• Coordination between various PLI initiatives

GST Structure Challenges

Beyond the PLI scheme modifications, Deloitte highlighted structural issues in the current tax framework affecting electric vehicle manufacturers. The inverted duty structure creates additional cost pressures, where inputs and components attract higher GST rates compared to the 5% rate levied on finished electric vehicles.

Current refund provisions cover only inputs and components, excluding capital goods and input services. Extending refunds to these categories would ease cost pressures and improve competitiveness for manufacturers.

Infrastructure Development Recommendations

Public charging infrastructure development faces its own tax-related challenges that impact adoption rates. Currently, charging infrastructure services attract 18% GST, significantly higher than the 5% rate applied to electric vehicles themselves.

Lowering the GST rate on charging services to 5% would reduce costs for consumers and encourage wider electric vehicle adoption across the country.

Market Outlook and Momentum

Despite current challenges, Sareen expressed optimism about continued sales momentum into 2026, particularly for electric vehicles. The existing concessional GST rate of 5% for EVs provides a foundation for growth, but addressing PLI scheme limitations and tax structure issues could significantly accelerate adoption rates and manufacturing capabilities in India's electric vehicle sector.