WASHINGTON: On May 18, the Ministry of Finance issued a circular directing all Public Sector Banks, Regional Rural Banks, and state-run insurance companies to progressively replace their petrol and diesel fleets with electric vehicles. The directive also urged institutions to curb foreign travel and shift meetings online. As a statement of intent from the government’s financial nerve centre, it deserves credit.
However, while the circular will move a few thousand government cars, the scale of the macro-economic challenge demands millions of vehicles. India currently imports over 85% of its crude oil, spending upwards of $150 billion annually. This is a massive financial bill made even sharper by a rupee that has depreciated 15% against the dollar in the past year alone.
A critical fact that rarely surfaces in India’s EV conversation is that commercial vehicles, including trucks, buses, and freight carriers, represent roughly 5% of total vehicles on Indian roads but account for nearly 40% of all road transport fuel consumption. To make a meaningful impact on fuel dependency, the policy focus must shift toward these heavy fuel consumers.
The real barrier to India’s electric transition remains price rather than political will. A median-income family cannot afford an electric car, a state transport authority cannot replace its diesel bus fleet without subsidies that break its budget, and a logistics operator cannot profitably run electric trucks at current acquisition costs.
This affordability crisis is structural. It is driven by steep import duties of up to 100% on electric vehicles, a fragmented domestic supply chain, and a government entry scheme that offers a reduced 15% duty for EVs priced above $35,000, contingent on a Rs 4,150 crore investment commitment. This policy effectively suits only the ultra-premium segment, leaving the mass market, along with buses and trucks, completely unaddressed.
What India needs now is a single, coherent, market-opening framework that applies equally to cars, buses, and trucks. The objective should be to lower import barriers enough to introduce affordable electric vehicles into the market today, while legally guaranteeing that world-class manufacturing capacity is built on Indian soil within a fixed window.
The ideal mechanism to achieve this balanced transition is a Bank Guarantee-backed localisation model. Under this framework, the government could open a time-limited window allowing imports of mass-market electric cars priced below $25,000, alongside electric buses and trucks of all categories, at a flat concessional duty of 25%.
To protect domestic interests, every manufacturer accessing this concessional rate must be required to furnish a Bank Guarantee for the precise amount of the duty foregone. This guarantee would be cashed by the government only if the specific terms of import and local investment are not met. Through this method, the state loses nothing, and serious global manufacturers lose nothing.
The only logical distinction between the vehicle segments in this framework should be the implementation timeline. While passenger car manufacturing plants can realistically be commissioned within three years, commercial bus and truck facilities warrant a four-year timeline. The structural framework remains identical; the clock is simply adjusted slightly longer to match engineering reality rather than protectionist sentiment.
It must be recognised that lower tariffs can create market demand, but they do not automatically establish a local supply chain. Establishing a robust domestic ecosystem requires Production Linked Incentives directed specifically at components where India remains entirely import-dependent, rather than generic EV assembly, where domestic capability already exists.
Strategic incentives must target advanced battery cell manufacturing, processed lithium and cobalt refining, rare-earth magnets, and automotive-grade semiconductors required for Battery Management Systems and inverters.
Furthermore, every manufacturer participating in the concessional window must strictly adhere to a phased roadmap for domestic value addition. This should mandate 25% local sourcing by year three and 50% by year five. Without enforcing this structural discipline, India risks building a massive market for foreign technology rather than establishing a durable platform for indigenous capability.
A rapid transition creates legitimate anxiety for India’s existing automotive manufacturers. Engine foundries, transmission machining lines and fuel-system suppliers represent billions in invested capital and hundreds of thousands of jobs. The answer is not to slow the transition but to make it survivable. Incentivising “flex-line” manufacturing — where common welding, assembly and paint infrastructure handles both ICE and EV models — allows legacy producers to scale electric output alongside demand while redirecting combustion-engine capacity toward export markets where the ICE phase-out will take longer.
India has a narrow window — perhaps three years — before global EV supply chains lock into configurations that exclude us. China already dominates battery cell manufacturing, and Western industrial blocs are building vertically integrated ecosystems at a pace. If India waits for a perfect domestic EV industry before opening its market, it will arrive late to a race that has already been run.
The Finance Ministry’s circular tells us that the government sees the direction. But it does not move the market. For that, India needs a duty framework covering every vehicle category, a Bank Guarantee model that locks in manufacturing without freezing capital, PLIs targeting the components we actually lack and a flex-line strategy that brings the legacy industry forward.
The bus that replaces ten thousand barrels of diesel over its lifetime is not a climate gesture. It is a strategic asset. India has enough of them to matter — if only we make them affordable enough to buy.