The Indian government is actively weighing a proposal to extend the concessional 5% basic customs duty (BCD) on lithium-ion cells used in electric vehicle (EV) battery packs for another two years. This crucial decision, expected in the upcoming Union budget, comes against the backdrop of a domestic manufacturing ecosystem that has struggled to gain momentum, forcing the industry to rely heavily on imports.
Domestic Manufacturing Stalls, Imports Surge
Despite ambitious plans, India's journey towards self-reliance in battery cell manufacturing has hit significant roadblocks. The high-profile Production-Linked Incentive (PLI) scheme for Advanced Chemistry Cells (ACC), with an outlay of ₹18,100 crore launched in 2021, has yet to see any disbursals. Consequently, the country remains largely an assembler of battery packs, importing the core cells from overseas.
This import dependency is reflected in stark numbers. India's lithium-ion cell imports ballooned to $3 billion in the financial year 2024-25 (FY25), a sharp rise from $1.8 billion in FY22, according to commerce ministry data. With the battery accounting for 40-50% of an EV's total cost, this import bill directly impacts vehicle affordability.
Demand is only set to explode. Industry estimates suggest the requirement for these cells will quadruple from the current 15 gigawatt-hours (GWh) to 60-65 GWh by FY30, driven by the accelerating adoption of electric two-wheelers, three-wheelers, cars, and commercial vehicles.
Industry Pushes for Duty Extension to Maintain Growth
The proposal for extending the concessional duty originated from the automobile industry during pre-budget consultations with the finance ministry. Stakeholders argue that an extension is vital to support the EV market's growth trajectory in the near term.
"The extension would be supportive for the growth of battery adoption, given that the domestic manufacturing industry is in its early days," said Debmalya Sen of the India Energy Storage Alliance (IESA). He warned that if the duty is increased, the existing battery assembling industry would be adversely affected. Sen noted that local battery manufacturing facilities are expected to reach commercial scale only by the end of this decade.
Analysts echo this sentiment. Alekhya Datta from The Energy and Resources Institute (TERI) stated that extending the 5% BCD would likely contain near-term EV prices by preventing a duty step-up on imported cells. This is critical as the cost premium, or "greenium," for EVs remains high, especially for commercial vehicles.
Balancing Short-Term Adoption with Long-Term Self-Reliance
The policy move presents a classic dilemma. While the duty concession supports EV affordability and uptake in the short run, it could potentially dilute the urgency for investments in domestic cell manufacturing. The concessional 5% duty was first introduced in 2019 to promote local manufacturing, after an initial period of exemption.
Datta cautioned that the extension would require safeguards, such as coupling it with localization or PLI-linked milestones, "to avoid prolonging import dependence." Finance Minister Nirmala Sitharaman has consistently focused on green mobility, offering a series of duty exemptions in recent budgets for machinery, critical minerals like lithium, and capital goods needed for battery manufacturing.
Globally, the battery landscape is evolving rapidly. The International Energy Agency (IEA) noted that 2024 saw annual battery demand surpass 1 terawatt-hour (TWh). A global capacity of 3 TWh was created by 2024, with potential to triple by 2029. Notably, battery prices have fallen below $100 per kWh, aided by an 85% drop in lithium prices from their 2022 peak.
In India, rating agency Icra projected in March 2025 that over 150 GWh of Li-ion battery cell capacities are to become operational by 2030, involving investments exceeding ₹75,000 crore. However, these projects face risks from time and cost overruns, geopolitical shocks, and dependence on imported raw materials.
The ministries of finance and heavy industries, along with major auto and battery companies like Tata Motors, Mahindra, and Ola Electric, did not respond to queries on the matter. The government's final decision in the budget will signal its strategic priority: cushioning the current EV market or applying pressure to fast-track the domestic battery manufacturing revolution.
