EV Battery And Solar Panel Manufacturing: How Union Budget 2026‑2027 Accelerates India's Supply Chain Shift

Executive Summary

India's clean‑energy manufacturing landscape is entering a defining moment. The Union Budget 2026–27 signals a strategic shift toward building world‑class capabilities in EV battery production and solar panel manufacturing, two industries that will shape the country's energy security and global competitiveness over the next decade. With a blend of customs duty reforms, significant capital investments, and targeted industrial schemes, the government is laying the groundwork for a self‑reliant ecosystem that can accelerate electrification, reduce import dependence, and drive innovation across the value chain. These measures reflect a broader national ambition: to position India not just as a large clean‑energy market, but as a manufacturing powerhouse in the global transition.

The Budget demonstrates continuity and expansion of manufacturing incentives, particularly focusing on domestic value addition, supply chain localisation, and cost competitiveness. Key measures include extension of Basic Customs Duty (BCD) exemptions on capital goods for lithium-ion cell manufacturing to cover Battery Energy Storage Systems (BESS), complete duty exemption on sodium antimonate for solar glass production, and enhanced tax deductions for critical mineral exploration.

Key Highlights:

• EV battery manufacturing market valued at USD 4,400 million in 2025, with 6.09% growth.
• Solar panel manufacturing market reached USD 8,800 million in 2025, growing 10.83%.
• Zero customs duty on lithium compounds and critical manufacturing inputs.
• Rare Earth Permanent Magnets scheme targeting 6,000 metric tonnes per annum capacity.
• India's solar module capacity exceeded 100 GW, ranking 4th globally.
• Strategic shift from net importer to net exporter in solar photovoltaic products.

This article provides a comprehensive analysis across budget measures, policy impact assessment, industry players, investment landscape, and demand-supply dynamics to support strategic decision-making for investors, manufacturers, and policy stakeholders.

1. Union Budget 2026-27: Key Measures and Amendments

1.1 EV Battery Manufacturing – Extension of BCD Exemption to Battery Energy Storage Systems

Budget Announcement: The existing Basic Customs Duty exemption on capital goods used for manufacturing Lithium-Ion Cells for batteries has been extended to also cover capital goods used for manufacturing Lithium-Ion Cells for Battery Energy Storage Systems (BESS).

Tariff Rate Changes (Effective February 2, 2026):

1. Lithium oxide and hydroxide: 7.5% to Nil
2. Lithium carbonates: 7.5% to Nil
3. Capital goods for Li-ion cell manufacturing (BESS): 7.5% to Nil

Regulatory Framework: Amendment to S. No. 69A of Notification No. 25/2002 dated March 1, 2002, extending the existing BCD exemption framework beyond EV batteries to encompass stationary energy storage applications.

Business Impact:

1. Boost to Domestic EV Ecosystem: Cheaper critical inputs will encourage local manufacturing of lithium-ion cells and EV batteries, supporting Government's push for electric mobility and localization.
2. Expansion of Energy Storage Market: Extension of BCD exemption on capital goods to BESS will lower project setup costs, making large-scale energy storage projects more viable.
3. Improved Investment Economics: Reduction in capital expenditure for setting up gigawatt-scale battery manufacturing facilities.
4. Enhanced Competitiveness: Domestic manufacturers gain cost advantages over imported battery solutions.

1.2 Solar Panel Manufacturing – Input Cost Reduction

1.2.1 Customs Duty Exemption on Sodium Antimonate

Budget Announcement: Basic Customs Duty exemption has been introduced on the import of sodium antimonate for use in the manufacture of solar glass.

Tariff Rate Change: Sodium antimonate for solar glass manufacture: 7.5% to Nil

Business Impact:

1. Raw Material Cost Reduction: Elimination of import duty lowers raw material costs, improving margins and cost competitiveness for solar glass manufacturers.
2. Domestic Value Addition: Supports local solar glass production, a critical component in the photovoltaic value chain.
3. Module Cost Reduction: Lower solar glass costs translate to reduced overall module manufacturing expenses.
4. Capacity Expansion Support: Improved economics encourage investment in solar glass manufacturing infrastructure.

1.3 Critical Minerals – Upstream Value Chain Development

1.3.1 Capital Goods Exemption and Tax Incentives

Budget Announcement: Basic Customs Duty exemption has been provided on the import of capital goods required for processing critical minerals in India.

Tax Framework Enhancement: Expansion of Schedule XII of the Income-tax Act, which allows deferred deduction over 10 years from the year of commercial production for expenses incurred on prospecting, extraction, or production of specified minerals. The Budget proposes to expand this list to include critical minerals essential for clean energy and advanced manufacturing.

Business Impact:

1. Improved Project Viability: Allowing deferred tax deduction for prospecting and exploration expenditure reduces effective tax burden, improves cash flows, and enhances commercial attractiveness of investing in critical mineral projects.
2. Boost to Domestic Supply: Tax incentives likely to encourage increased exploration activity, supporting supply chain security for sectors such as EVs, renewable energy, electronics, and defence.
3. Strategic Autonomy: Reduced dependency on imports of processed critical minerals, particularly lithium, cobalt, nickel, and rare earth elements.

1.4Scheme for Rare Earth Permanent Magnets

Scheme Objectives: The Scheme for Rare Earth Permanent Magnets, launched in November 2025, aims to strengthen India's domestic production and self-reliance in rare earth materials. Under this scheme, the mineral-rich states of will be supported to establish dedicated Rare Earth Corridors, promoting mining, processing, research and manufacturing of rare earth elements and permanent magnets.

Geographic Focus: Odisha, Kerala, Andhra Pradesh, and Tamil Nadu

Target Capacity: 6,000 metric tonnes per annum of integrated manufacturing capacity

Financial Outlay:

1. Sales-linked incentives: INR 6,450 crore
2. Capital subsidies: INR 750 crore
3. Total commitment: INR 7,200 crore

Impact Assessment: A structured review of the Rare Earth Permanent Magnets Scheme reveals distinct short-, medium-, and long-term impacts that collectively strengthen India's rare earth and clean‑energy manufacturing capabilities.

Strategic Significance: Rare earth permanent magnets are essential components in EV motors, wind turbine generators, and advanced electronics. Currently, global supply is dominated by China (over 85% market share). This scheme directly addresses India's strategic vulnerability in this critical material segment.

2. Geographic Manufacturing Hubs in India

2.1 EV Battery Manufacturing – Top 5 Beneficiary States

States such as Tamil Nadu, Maharashtra, Karnataka, Gujarat, Haryana, and Uttar Pradesh have emerged as major EV hubs through aggressive policy support and dedicated clusters, anchoring OEMs, battery producers, and component manufacturers.

2.2 Solar Power – Top 5 State-wise Installed Capacity

3. Foreign Investment Imperative

3.1 EV Battery Manufacturing – Investment Drivers

• Market Scale: India is the 3rd largest automotive market globally by sales volume, ahead of Japan and Germany. With annual vehicle sales exceeding 4 million units, the transition to electric mobility opens substantial market potential for battery manufacturing and EV adoption.
• Policy Support and Incentives:
  • New EV Policy (2024): Government approved USD 500 million incentive package to attract global EV companies and position India as a manufacturing hub for advanced electric vehicles.
  • Production Linked Incentive (PLI) for Advanced Chemistry Cell (ACC): INR 18,100 crore outlay for domestic battery manufacturing with 50 GWh capacity targets.
  • Rare Earth Permanent Magnets Scheme: INR 7,200 crore for domestic magnet production essential for EV motors.
  • Purchase Preference to Local Suppliers: Government procurement mandates favor domestically manufactured EVs and components.
  • Basic Customs Duty Exemptions: Zero-duty imports of capital goods and critical inputs for battery and energy storage manufacturing.
  • FAME III Scheme: Continued demand incentives for EV adoption across vehicle segments.
• Strategic Positioning: India offers combination of large domestic market, cost-competitive manufacturing, skilled workforce, and strong policy support – creating attractive proposition for global battery manufacturers seeking to diversify supply chains away from China-concentrated production.

3.2 Solar Panel Manufacturing – Investment Drivers

• Export Market Opportunity: Indian solar module exports increased by more than 23 times between FY2022 and FY2024. United States accounted for over 97% of India's solar exports in both FY2023 and FY2024. India is positioned to potentially replace Southeast Asian countries as the leading photovoltaic exporting nation to the US market, particularly as American importers diversify away from China-origin supply chains.
• Domestic Market Scale: Solar energy installed capacity reached 132.85 GW in November 2025, representing 41% increase compared to 94.17 GW in November 2024.⁸ Domestic solar module capacity expanded to 100 GW, ranking 4th globally.
• Key Schemes Supporting Solar Manufacturing:
  • Production Linked Incentive (PLI) for Solar PV: Support for vertically integrated manufacturing from polysilicon to module production
  • Rare Earth Permanent Magnets Scheme: Upstream critical materials support
  • Central Public Sector Undertaking (CPSU) Scheme: Government entity procurement mandates for domestic modules
  • PM-KUSUM (Pradhan Mantri Kisan Urja Suraksha evam Utthaan Mahabhiyan): Solar pump and rural electrification program driving module demand
  • Grid Connected Rooftop Program: Residential and commercial solar installation incentives
  • Approved List of Models and Manufacturers (ALMM): Quality standards and domestic manufacturing preference for government projects
  • Purchase Preference to Local Suppliers: Procurement advantages for domestically manufactured solar products
  • BCD Exemption on Sodium Antimonate: Input cost reduction for solar glass manufacturing

4. Foreign Direct Investment Trends

4.1 Comparative FDI Analysis (2022-2025)

Trend Analysis:

Solar Panel Manufacturing:

1. Consistent upward trajectory with 202% growth from FY2022 to FY2025.
2. Strong policy support and export market opportunities driving investment confidence.
3. PLI scheme disbursements attracting global solar manufacturers.
4. Average annual FDI growth of 44% over four-year period.

EV Battery Manufacturing:

1. High FDI in FY2022 (USD 6,990 million) followed by normalization to USD 1,500-1,900 million range.
2. Initial spike possibly driven by large announcements that subsequently faced execution challenges.
3. Stabilisation at USD 1,500-1,600 million annual inflow indicating steady ongoing investment
4. Market awaiting policy clarity on battery chemistry standards, recycling mandates, and long-term incentive visibility

Sector Comparison: Solar panel manufacturing demonstrates more consistent growth momentum in FDI attraction compared to the EV battery sector, suggesting stronger near-term investor confidence in solar manufacturing opportunities.

Conclusion

The Union Budget 2026-27 represents a decisive policy commitment to building India's clean energy manufacturing ecosystem, with targeted interventions to address critical bottlenecks in both EV battery and solar panel manufacturing. The comprehensive approach – spanning customs duty rationalisation, capital subsidies, tax incentives, and upstream development of critical minerals – creates favourable economics for domestic manufacturing and positions India as an emerging alternative to China-dominated supply chains.

India's clean energy manufacturing ambitions face substantial execution challenges – particularly in closing upstream capacity gaps, achieving cost competitiveness, and securing critical material supply chains. However, the combination of a large domestic market, export opportunities, an improving policy framework, and strategic geopolitical positioning creates a compelling investment case for both sectors.

Success will require sustained policy support beyond Budget 2026-27, continued technology upgradation, and coordinated development across the value chain from critical minerals to finished products. For manufacturers and investors who navigate near-term challenges, India's energy transition presents a multi-decade growth opportunity in two of the most critical clean energy technology segments.

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