India's strategic push toward manufacturing-led growth through Production Linked Incentive (PLI) schemes presents a pivotal moment for Battery Energy Storage Systems (BESS). This sector's development is not merely an industrial opportunity but a cornerstone for national energy security, grid stability, and the seamless integration of renewable power sources.
The Critical Need for Storage in India's Energy Transition
With an ambitious national target of achieving 500 gigawatts of non-fossil fuel capacity by the year 2030, the role of energy storage has transitioned from being supplementary to absolutely essential. Industry projections indicate that India will require a substantial 150 to 200 gigawatt-hours of stationary energy storage by the end of this decade. This capacity is vital to manage the inherent intermittency of renewable sources like solar and wind and to address peak electricity demand effectively.
Currently, policy frameworks supporting storage manufacturing are in a relatively nascent phase compared to the well-established support for power generation and transmission infrastructure. This disparity underscores a significant opportunity for the government to craft a refreshed, forward-looking strategy specifically tailored to the evolving dynamics of the modern power system.
Assessing the Status of India's ACC-PLI Scheme
The flagship Advanced Chemistry Cell (ACC) PLI scheme, with an impressive outlay of approximately Rs 18,100 crore, was conceived to catalyze the creation of 50 GWh of domestic battery cell manufacturing capacity. It has undoubtedly laid a crucial foundation for building India's indigenous battery ecosystem. However, the on-ground execution has progressed more slowly than initially envisioned.
Nearly three years after the allocation of incentives to selected players, only a limited portion of the planned manufacturing capacity has reached the commissioning stage. Several projects are navigating typical early-stage hurdles, including challenges related to achieving financial closure, securing robust technology partnerships, and localizing complex supply chains.
When viewed against the backdrop of India's rapidly accelerating demand for energy storage, this pace of capacity addition suggests that the original PLI targets may require revisiting and recalibration. Bridging the growing gap between projected storage requirements and actual commissioned capacity will be paramount to sustaining momentum and ensuring that policy objectives translate into scalable, timely outcomes.
Global Benchmarks: Lessons from China and the European Union
On the global stage, China dominates the lithium-ion battery manufacturing landscape, accounting for over 70% of worldwide cell production. Its installed capacity exceeds an enormous 1,200 to 1,500 GWh, with annual additions ranging between 200 and 300 GWh. Chinese manufacturers benefit from deep vertical integration, controlling the entire value chain from raw material refining to the production of cathodes, anodes, cells, battery packs, and complete BESS integration. This integration has driven system-level costs for grid-scale storage below USD 80 per kilowatt-hour.
Conversely, the European Union anticipates battery demand reaching roughly 400 GWh annually by 2026–27, primarily fueled by electric vehicles and grid storage needs. While facing its own execution challenges, the EU has deployed a multi-layered incentive structure. This includes capital grants, operating subsidies, mechanisms like the Carbon Border Adjustment Mechanism (CBAM), and ensuring long-term offtake visibility, rather than relying solely on output-linked incentives like PLI.
India has made commendable strides with its cell-centric PLI initiative. There is now a clear scope to extend policy support to upstream areas such as battery materials and power electronics. These segments require targeted government intervention to resolve persistent supply chain challenges.
Global trade dynamics add further complexity. The EU's tightening sustainability standards, subsidy-screening protocols, and carbon-linked import norms are increasing compliance burdens for exporters. Simultaneously, India's own strengthening of regulations concerning battery waste and the export of black mass—while strategically aligned with long-term resource security goals—may reduce short-term monetization avenues for recyclers and refiners. Without sufficient domestic refining capacity and offtake depth, these transitional policy shifts can impact near-term project economics.
The Missing Middle: Battery Components and Materials
A significant strategic opportunity for India lies in the midstream segment of battery components. This includes cathode and anode active materials, battery material processing and beneficiation, separators, and certain specialty chemicals. Globally, this layer accounts for a substantial 35–40% of the total value addition in a battery cell.
India is increasingly pivoting toward lithium-iron-phosphate (LFP) chemistry, favored for its thermal stability, lower cost, and suitability for hot climates. This shift is accelerating interest in establishing domestic LFP cathode production. The segment has attracted both innovative startups and established industrial players. While activity and interest are gaining momentum, commercial-scale deployment is progressing in a measured and cautious manner.
Budget 2026: A Critical Inflection Point for Policy
The upcoming Union Budget for 2026 represents a critical inflection point for India's energy storage ambitions. Several targeted policy interventions are essential:
- Explicit PLI Integration: Grid-scale BESS must be integrated explicitly into the PLI framework, rather than being treated merely as an extension of cell manufacturing.
- Fiscal Measures: Targeted fiscal measures can materially improve project viability. These include extending Section 35AD benefits for new storage projects, protecting loss carry-forward provisions under Section 79 of the Income Tax Act, and reducing the Goods and Services Tax (GST) on grid-scale BESS from the current 18% to a more conducive 5%.
- Value-Chain Approach: There is a compelling opportunity to evolve the PLI framework toward a comprehensive value-chain-led approach. This would cover not only cells but also critical upstream components like cathode/anode materials and separators, as well as downstream power electronics such as Battery Management Systems (BMS) and Energy Management Systems (EMS) software.
Aligning manufacturing incentives more closely with domestic deployment targets can help ensure timely capacity creation, reduce import dependence, and improve the long-term utilization and sustainability of manufacturing assets.
Addressing the Deep-Tech Funding Gap
India's deep-tech ecosystem, particularly in areas like advanced battery materials, chemistry, and process innovation, faces a structural funding constraint. Innovations in these fields require long-gestation research and development cycles and patient capital, often spanning 7 to 10 years.
To address this, policy must strengthen R&D support by:
- Allocating dedicated funds for innovation grants.
- Upgrading national battery testing and certification infrastructure.
- Launching programs that actively promote the development and commercialisation of indigenous storage technologies.
Furthermore, providing support in the form of Viability Gap Funding (VGF) or technical assistance to mid-layer technology companies working in the material value chain is crucial. Leveraging and expanding existing instruments like the Social and Responsible Investment (SRI) Fund to channel venture capital specifically into domestic battery-component and energy-storage manufacturing startups would help scale early-stage technologies and fortify India's local supply chain resilience.
Energy storage possesses the potential to be India's next clean-energy manufacturing growth engine. However, realizing this potential demands a decisive shift in policy—from intent to rigorous execution, and from offering isolated incentives to designing a cohesive, ecosystem-level strategy that addresses the entire value chain.
