Picture a freight operator in Maharashtra weighing a crucial decision: stick with a reliable diesel truck or take a chance on electric. The upfront cost difference? Nearly 4 times. With limited capital, many operators are likely to choose diesel. Yet this gap isn't insurmountable. Supply-side regulations - which push manufacturers to produce and sell more electric vehicles - present a strategic opportunity to accelerate the transition to clean transportation, ensuring that when fleet owners run the numbers, electric becomes not just viable, but the winning choice.

India is in the midst of a profound transformation, steering its vast automotive sector toward an electric future. The goals: reduce oil dependence, combat climate change, and ensure that 30% of all new vehicle sales are electric by 2030. To achieve this, the government initially relied on incentives, like those provided under FAME and PM E-DRIVE, to encourage consumer demand.

Looking ahead, supply-side regulations can unlock India's next wave of electric vehicle growth. India has already implemented Phase 2 of its Corporate Average Fuel Consumption (CAFC) standards for passenger cars, which set stricter fuel efficiency targets for automakers by requiring them to meet fleet-wide average fuel consumption limits. The Bureau of Energy Efficiency (BEE) recently released draft proposals to extend these supply-side regulations to light commercial vehicles (LCVs), buses, and heavy-duty vehicles (HDVs) for the first time. This proposal, which would cover the 2027-2032 period, signals a strategic step forward for India's electric revolution - and can help pave the way to achieving India's 2030 battery electric vehicle (BEV) target.

Where India stands today
Vehicle sales data from Fiscal Year (FY) 2024-2025 reveal that India is a market in transition (Figure 1). Three-wheelers are the undisputed leaders in electrification, with a remarkable 45% of new sales being electric, positioning India at the forefront of the global electric three-wheeler market. This growth has been driven by a simple economic reality: the total cost of ownership of BEV three-wheelers now undercuts their petrol and diesel counterparts, making them a financially sensible choice for operators. For rickshaw operators, that translates to real savings every month.

Electric two-wheelers had the second-highest BEV share of new sales in the Indian market, at 6%. The previous FAME II purchase subsidy was instrumental in making these vehicles significantly cheaper. BEV sales across most other vehicle types increased in 2024-2025 compared with the previous financial year, with sales of LCVs nearly doubling, albeit from a low starting point. This stemmed from the introduction of more appealing and affordable models from major manufacturers and lower lifetime operating costs compared with conventional vehicles.

The heavy-duty challenge
The most significant hurdle lies with heavy-duty trucks, the lifeblood of India's freight sector. This segment remains almost entirely dependent on diesel. The barriers to electrification here are substantial: upfront costs for electric trucks are roughly 3 to 4 times as much as a diesel equivalent, highway charging infrastructure is inadequate for long-haul routes, and persistent concerns about operational reliability and range create hesitancy among fleet owners. While incentives have been effective in spurring initial uptake, they are too costly to sustain in the long term.

In this context, supply-side regulations can play a key role in positioning India to meet its national target of 30% electric vehicles. One of the most effective tools is implementing and strengthening fuel consumption standards across all vehicle types.

Here's how it works: each manufacturer's entire fleet of new vehicles is required to meet an increasingly strict average efficiency target. While these targets may initially be achievable through improvements to conventional vehicles, beyond a certain point, it is cheaper to lower fleet-average emissions by selling more BEVs. This approach not only expands the BEV market but also pushes for more efficient gasoline-powered vehicles.

These regulations provide long-term certainty, encouraging sustained investment from both carmakers and infrastructure partners. As production scales up, the cost of BEVs and advanced technologies comes down. This model has a strong track record in the EU, the UK, and California, where it has driven major growth in investment, job creation, and infrastructure. Table 1 outlines the findings of an ICCT analysis on standard levels required to boost BEV market shares across all vehicle segments and achieve the 30% national goal.

Note: This analysis considered FY 2024-2025 sales data sourced from Segment Y. Super credits declared in released draft proposals have been taken into consideration for BEV sales shares.

Until 2025, the BEE had released no draft proposals or notifications related to fuel consumption standards for two- or three-wheelers. Currently, there is a draft proposal published by the BEE on new fuel consumption standards for LCVs, buses, rigid trucks, and tractor trucks. For four-wheelers, CAFC Phase 2 norms are already in place, and a revised CAFC Phase 3 proposal has been released. For this modelling exercise, we assumed that the CAFC norms for buses, trucks, two-wheelers, and three-wheelers designate BEVs as zero-emission vehicles.

Getting super credits right
But there's a catch in how these standards are designed. As shown in the table, some fuel efficiency standards, such as those for passenger cars, offer "super credits" for BEVs, under which each BEV sold counts as multiple vehicles for compliance purposes. For example, with a super credit factor of 4, if a manufacturer sold 100 BEVs, they would be counted as 400 vehicles when calculating the manufacturer's compliance with stringency targets. The draft proposals for LCVs and HDVs include similar super credit provisions.

Super credits can accelerate electrification by offering manufacturers a cost-effective pathway to meet CAFC targets. But they also make it easier for manufacturers to meet these targets without transforming their entire fleet - and if extended for too long, risk weakening the push for genuine electrification.

Super credits should thus be used only as an interim support mechanism to help manufacturers establish an initial BEV manufacturing base - and they must be phased out over time. Complementing this, a timely revision and tightening of the CAFC regulation is essential. A stronger, technology-neutral standard will ensure the deployment of more fuel-efficient and cleaner vehicles and sustain the long-term market transition beyond reliance on super credits.

Tailoring the approach
Applying this framework across different vehicle segments is key. For example, a regulatory stringency target, such as a 30% improvement, can yield different BEV sales outcomes depending on the policy design.

In segments like trucks, where the proposed regulations offer super credits for BEVs (ranging from 4 to 1 for different truck groups) and treat them as zero-emission vehicles, a manufacturer could meet their fleet-wide target with just a 10% BEV share for rigid trucks. By contrast, a 60% stringency in the three-wheeler segment would demand 60% BEV sales if there were no super credits and BEVs were regarded as zero-emission vehicles. This illustrates the importance of tailoring regulatory design to encourage specific market outcomes.

The path forward
India's journey toward an electric vehicle future is well underway, with remarkable progress seen in the two- and three-wheeler segments. The real challenge - and the greatest opportunity - now lies in electrifying the larger and more complex vehicle categories.

The recent strategic shift toward supply-side policies, focusing on stringent fuel consumption standards and fostering domestic manufacturing, charts the right course. By learning from global best practices and implementing a consistent, long-term regulatory plan tailored to each vehicle segment, India can not only meet its ambitious 2030 goals but also establish itself as a global leader in clean and sustainable transportation.

The article has been authored by Moorthy Nair, Researcher, and Ashok Deo, Senior Researcher, ICCT.