Summary In this paper, a stator current‐based model reference adaptive system (SCMRAS) for indirect vector control of induction motor fed to hybrid electric vehicle (HEV) for improving the transient response during limp home period has been proposed. In the proposed SCMRAS, the measured stator currents are employed in voltage model to eliminate the integrator in reference model. The stator currents are estimated and are compared with actual current components to estimate the rotor speed. Further, to improve the performance of SCMRAS during limp home period, the PI controller in the adaptation mechanism is replaced with type 2 fuzzy logic controller (T2FLC). The prototype model of the proposed SCMRAS using dSPACE DS 1104 R&D controller board has been developed for implementing speed sensorless indirect vector control of induction motor drive. The performance of SCMRAS and proposed SCMRAS using T2FLC estimators during limp home period is compared. To eliminate the integrator in the reference model, the proposed stator current model reference adaptive system uses the measured stator currents in the voltage model. The stator currents are estimated and compared to the actual current to estimate the rotor speed. The PI controller in the adaption mechanism is replaced with a type 2 fuzzy logic controller to improve Induction motor drive fed Hybrid electrical vehicle dynamic performance during the limp‐home period.