Opinion
India needs EV success even if it increases exposure to Chinese value chains
Summary
- Greater reliance on Chinese input suppliers might be inescapable, but then the prospect of India emerging as an EV-making hub would outweigh the potential downside of that.
India’s policy focus on making the country a hub for EV-making will have a side effect. As electric vehicles (EVs) roll off assembly lines, our dependence on Chinese imports will rise, even though we’ve been trying to reduce it. That’s because China, with a head-start of a decade or so, is the global leader of clean-tech in general and this segment of the auto industry in particular. A report by Global Trade Research Initiative (GTRI) highlights this trade-off. Our latest EV thrust, led by a policy carve-out that envisions a competitive EV industry behind low tariff barriers, is likely to result in greater shipments from China, which dominates the global value chain (GVC) of EV batteries, going all the way back to lithium, a key mineral. In the next few years, according to the report, “every third EV and many passenger and commercial vehicles on [Indian] roads could be those made by Chinese firms." This isn’t a scenario New Delhi will be comfortable with as ties with Beijing fray amid geopolitical tension, territorial disputes and economic competition. We don’t have much choice, though. China embarked on an EV drive before others and is well ahead on cost compression. While India has a lot of catching up to do, the race has only just begun and so we can still hope to vie for global leadership. Auto-making in India has always been done behind high tariffs, but with EVs, a new story could possibly be scripted.
Currently, about 70% of the materials used to make EVs in India are imported from China and other countries, according to the GTRI report. The People’s Republic is home to an estimated three-fourths of the world’s battery capacity, an input that typically accounts for between a third and 40% of an EV’s cost. Separately, in a recent study to assess the exposure of our factories to overseas GVCs, chief economic advisor V. Anantha Nageswaran and his team found that between 2000 and 2022, China’s share of foreign inputs purchased by Indian manufacturers shot up from 5% to 23%, with America’s share as our next major source-country far lower, at only 6%. This is a significant dependency, overall. If GTRI’s forecasts pan out without equivalent reductions in other industries, an adversarial country could exceed a quarter of India’s GVC exposure. Although this is a sign of how interlinked today’s globalized world is, the US-led West has blatantly flouted free-trade ideals in trying to squeeze Chinese exports and Indian interests can be argued to lie in adopting a similar stance. After the Galwan border clash in 2020, New Delhi sought to dissuade Chinese participation in our economy. Now with a new EV policy that’s likely to draw shiploads of cargo from China, should we worry about the disruption risks this would entail?
Much of what goes into cars is already made locally. We have yet-to-be-exploited lithium deposits in Jammu and Kashmir and Rajasthan. Given time, self-sufficiency is conceivable. But for now, Chinese inputs seem inevitable, so we must weigh what could go wrong against the gains of India emerging as an EV hub, an aim that would be hobbled without access to the world’s cheapest usable components. Today’s emphasis should be on making headway as an EV-making country to rival China in markets abroad. If a step-up in Chinese participation—say, via joint ventures with Indian firms—serves this purpose, we should accept it without flinching. To mitigate risk, we could zoom out and work out plans for other industries with easier paths to exposure reduction. But let this anxiety not get in the way of India’s EV bet.
