EVs in India have moved on subsidies. Delhi policy shows clearer path

The most important element of the policy is the proposed phase-out of internal combustion engine vehicles in key segments. The plan to stop new registrations of ICE three-wheelers from January 2027 and two-wheelers from April 2027 is an ambitious and strategic intervention as the segment constitutes almost three-fourths of motor vehicle sales in Delhi. It moves beyond incentives and establishes a clear regulatory direction. This distinction is critical.

India’s EV journey so far has relied heavily on subsidies. While these have played an important role in market creation, they have not delivered scale on their own. What drives sustained adoption is certainty. When the industry knows that a transition is inevitable, it invests accordingly in manufacturing, supply chains, and innovation. Consumers, in turn, respond to falling costs and improved availability. Global experience reinforces this. Jurisdictions that have achieved rapid EV adoption have done so by combining incentives with clear phase-out timelines. India has been cautious in embracing this approach. Delhi’s draft policy signals a departure from that caution. It is a step in the right direction, and one that other states would do well to study closely.

At the national level, the revised CAFE-3 draft is equally important. Passenger cars are a weak link in India’s electrification story, with EV penetration at only around 4 per cent. CAFE norms are the principal regulatory tool available to influence this segment.

The latest draft reflects some positive changes. The earlier provisions that disproportionately favoured small petrol vehicles have been tightened. The introduction of mechanisms such as credit pooling and the option to purchase compliance credits introduces flexibility while ensuring accountability. These are pragmatic features that can ease the transition for manufacturers while maintaining pressure to improve efficiency.

However, important concerns remain. The continued use of super-credit multipliers for hybrid technologies is one such issue. Strong hybrids, plug-in hybrids, and flex-fuel vehicles are not zero-emission solutions. While they may serve as transitional technologies, offering them generous compliance credits risks diluting the signal to invest in full electrification. If we get locked into intermediate hybrid technology, we will lose two decades. We need to technologically pole vault as we did in digital public infrastructure and mobile telephony. If the objective is to accelerate the shift to zero-emission vehicles, the regulatory framework must reflect that priority clearly and consistently.

Equally important is the issue of timing. CAFE-3 has been under discussion for more than three years. Multiple drafts have been circulated, and extensive consultations have taken place. Yet, the standard remains unfinalised. This delay has tangible consequences. In the absence of regulatory clarity, manufacturers defer investment decisions, supply chains evolve more slowly, and the broader ecosystem remains uncertain.

Policy ambition must be matched by timely execution. Finalising CAFE-3 is no longer a matter of refinement. It is a matter of urgency. Trucks account for only 3 per cent of India’s vehicle fleet, yet they contribute around 44 per cent of transport emissions. This imbalance makes freight one of the most critical sectors for decarbonisation. And yet, it remains largely outside the current policy focus.

India’s existing framework for heavy-duty vehicles is based on model-specific fuel efficiency standards. While this represents a starting point, it does not create the kind of systemic pressure needed to drive transformation. There is no fleet-average mechanism and no meaningful incentive for manufacturers to introduce zero-emission trucks. As a result, the regulatory signal to invest in electric or hydrogen-based freight solutions remains weak. What is needed is a more comprehensive approach, a framework similar in spirit to CAFE but tailored to the realities of the commercial vehicle sector. This should be based on fleet-average performance, differentiated by payload categories, and designed to reward the adoption of zero-emission technologies. Without this, even well-intentioned schemes to promote electric trucks like the Ministry of Heavy Industries e-Truck initiative will struggle to achieve scale.The absence of a robust regulatory push in the freight sector is a gap India can ill afford.

India imports close to 90 per cent of its oil. The vulnerability is structural, and the answer, electrification of transport, is known. What has been missing is coordinated policy execution. Delhi has now shown what that looks like for two- and three-wheelers. The draft policy deserves strong public support during the 30-day comment period and should be strengthened, not diluted, before notification.

The BEE also needs to function more decisively as a regulator rather than a consultative agency. It has spent more than three years on CAFE and fuel efficiency regulations for medium- and heavy-duty trucks. This must come to an end. BEE must finalise CAFE-3, and set an ambitious EV trajectory for passenger cars. It must then move urgently on a fleet-average framework for trucks through fuel efficiency regulations.

We have a renewable energy revolution underway. We have the manufacturing base. We have the domestic market. What we need is for the Bureau of Energy Efficiency to match the ambition of the moment and finish the job it started three years ago.

The writer is chairman and chancellor, NIIT University and chairman, Fairfax Centre for Free Enterprises. He was India’s G20 sherpa and CEO, NITI Aayog. Views are personal