What Budget 2026 signals for India’s electric mobility transition

Budgets reveal their true worth not in the year they are presented, but in whether they anticipate binding constraints before they arrive. The Union Budget 2026-27, framed around the principle of kartavya, does this. It identifies urbanisation, infrastructure resilience, and mobility as the critical determinants of India’s trajectory toward Viksit Bharat by 2047. It marks a pivot from adoption-led infrastructure expansion to an ecosystem-building phase — one focused on reshaping systems, reducing import dependencies, and strengthening domestic manufacturing. Nowhere is this shift more visible than in the transport sector, which emerges as a core pillar of India’s atmanirbharta strategy.

Urbanisation and transport as binding growth constraints

Urbanisation emerges as a structurally important theme in the budget. The budget positions transport as a central lever, prioritising it within public capital expenditure, with sustained investment across urban mobility, railways, freight corridors, ports, and inland waterways. Since the pandemic, public capex has been deployed as a growth lever — rising from INR2 lakh crore in 2014–15 to over INR12 lakh crore in FY2026–27. What stands out is also the framing: transport is treated not as standalone capacity expansion, but as a system-level instrument to improve efficiency, support regional agglomeration, and reduce strategic vulnerabilities.

Electrification moves from adoption to ecosystem building

This systems-level shift reflects a key learning from India’s first phase of electric mobility policy journey. Recent econometric assessments by IEEFA show that demand-side interventions under Faster Adoption and Manufacturing of Electric Vehicles demonstrably worked — incentives helped overcome early cost barriers and catalyse market formation. But subsidies have limits, and once adoption begins to scale, constraints arise upstream: manufacturing capacity, supply-chain resilience, financing risk, and infrastructure readiness. While the budget does not recalibrate demand incentives, its emphasis on manufacturing depth, procurement-led deployment, and upstream ecosystem enablers signals a transition. 

Electric buses and a beachhead approach to transition

Electric buses represent a beachhead for India’s EV transition. Their central role in urban mass mobility, high utilisation rates, and procurement through long-term public contracts make them an ideal entry point for electrification at scale. The announcement of 4,000 electric buses for the Purvodaya region reinforces public procurement as a backbone demand creator in this segment. Electric buses are capital-intensive and produced against medium-term contracts, which provide manufacturers assured offtake and predictable revenue streams, materially reducing demand risk. 

Batteries, storage, and system readiness

Scaling electric mobility exposes upstream dependencies, particularly in batteries and energy infrastructure. Recognising this, the budget extends basic customs duty exemptions to capital goods used for manufacturing lithium-ion cells for battery energy storage systems. Battery energy storage is critical not only for transport electrification but also for grid stability and renewable energy integration. Supporting domestic storage manufacturing strengthens the electrification ecosystem while reducing import dependence on a critical component. Beyond manufacturing, the budget’s approach creates scope for lifecycle optimisation: as electric buses and vehicles age, their batteries can be repurposed for a range of stationary storage applications.

Rare earths and the foundation of strategic autonomy

The most consequential supply-side shift in the budget lies in its treatment of critical minerals. Electric motors depend on rare earth permanent magnets, yet India imported nearly 54,000 tonnes in FY 2024–25 — over 90% from China. This concentration has exposed manufacturers to price volatility, supply disruptions, and geopolitical risk. The budget addresses this through coordinated measures, building on the INR7,280 crore rare earth permanent magnet manufacturing scheme announced in November 2025. It proposes incentives for prospecting critical minerals, establishes dedicated rare earth corridors, and eliminates customs duty on monazite. These corridors integrate mining, processing, research, and manufacturing, shifting India from raw material extraction to value addition. However, building a domestic rare earth value chain is a multi-year endeavour — from prospecting and environmental clearances to establishing processing facilities and achieving commercial-scale production. Electric vehicle manufacturing, by contrast, operates on shorter cycles and cannot wait for domestic rare earth capacity to mature. In the interim, reducing import dependence will require diversifying sourcing beyond China and advancing technologies. 

A multimodal approach to transport efficiency

The budget situates electrification within a broader, system-wide approach to transport efficiency. Improving transport outcomes requires structural shifts in how freight and passengers move across modes. Sustained emphasis on multimodal logistics — including dedicated freight corridors, operationalising National Waterway-5 in Odisha to connect mineral-rich regions to ports, and a coastal cargo promotion scheme — supports lower-cost freight movement. Rationalising tax collection on minerals and promoting biogas-blended CNG can reduce logistics costs and emissions. Together, these interventions ease congestion, lower energy intensity, and create an efficient transport backbone.

The long view

The budget articulates a transport-led growth strategy about managing transition. Electric buses, battery manufacturing, rare earth corridors, and multimodal logistics represent an integrated attempt to align urbanisation, industrial policy, energy security, and transport reform. The budget recognises that India’s binding constraints have shifted from infrastructure deficit to efficiency, system integration, and supply-chain security. If the government’s Kartavya was to frame the ecosystem, the industry’s duty is execution. If sustained, this approach may be remembered less for what it spent than for the systems it began to reshape Viksit Bharat. 

This article was first published on News18