Following the GST reforms introduced in September last year, which lowered taxes across most passenger vehicle segments, the Union Budget 2026–27 offered limited direct measures focused on automobile manufacturing and sales. However, several announcements made by Finance Minister Nirmala Sitharaman are expected to indirectly benefit the Indian automotive industry, particularly in the areas of electric mobility, supply chains, and manufacturing competitiveness.
A key highlight of the Budget is the customs duty exemption on capital equipment used for processing critical minerals such as lithium, cobalt, and rare earth elements—essential inputs for EV batteries and electric motors. This move is expected to reduce the cost of setting up and expanding mineral processing facilities in India, promote domestic value addition, and lower dependence on imported refined materials. For EV manufacturers, this could improve input security, reduce exposure to global price volatility, and support long-term cost efficiency and supply chain resilience, ultimately aiding EV affordability.
The Budget has also extended customs duty exemptions on capital goods used in lithium-ion cell manufacturing. This is likely to reduce battery production costs and encourage the expansion of domestic battery manufacturing capacity, decreasing reliance on imported cells. Over time, this could lower costs across electric cars, two-wheelers, and buses, while improving battery availability. Consumers may benefit through more affordable EVs, better service support, and potentially longer battery warranties as local manufacturing scales up.
In a move supporting alternative fuels, the government announced a full excise duty exemption on the biogas component of biogas-blended CNG, excluding its entire value from excise calculations. Earlier, only GST paid on biogas was adjusted, leaving a residual tax burden. With excise duty on CNG at around 14 per cent, or approximately Rs 14–15 per kg, this change could reduce retail CNG prices by a few rupees per kilogram.
Acknowledging the growing importance of electronics and chips in vehicles, the government unveiled India Semiconductor Mission (ISM) 2.0. The updated mission expands beyond chip manufacturing to include semiconductor equipment, materials, and intellectual property. It will support the development of domestically produced equipment and materials, full-stack Indian chip IP, and stronger semiconductor supply chains, all of which are critical for the automotive sector.
The Finance Minister also highlighted the strong response to the Electronics Components Manufacturing Scheme, launched in April 2025 with an outlay of Rs 22,919 crore, which has already attracted investment commitments exceeding twice its target. As a result, the government has proposed increasing the scheme’s allocation to Rs 40,000 crore.
Auto and auto-component MSMEs are set to benefit from improved access to capital through a proposed Rs 10,000 crore SME Growth Fund, aimed at supporting capacity expansion, technology upgrades, and quality improvements.
Finally, to secure critical minerals for EV batteries, the government announced plans to develop rare earth corridors across Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. These corridors will span mining, processing, research, and manufacturing, strengthening supply security following recent disruptions caused by export curbs from China.