China’s shadow on India’s evolving EV roadmap

The need to make the transition from fossil fuels to renewable energy has gained urgency for India as climate change has caused a spate of unseasonal weather conditions in recent years. This is apart from the enormous cost incurred every year in buying oil and gas from abroad. Shifting to electric vehicles (EVs) from the fossil fuel-guzzling combustion engine has been a major part of the strategy for carrying out the transition. In pursuit of this aim, the government recently launched the third phase of the EV subsidy programme, the PM E-Drive, at an estimated cost of Rs 10,900 crore.

What is intriguing is that virtually at the same time, reports have filtered in about the Chinese government advising EV manufacturers to avoid making investments in countries like India and even Turkey. This is meant to prevent foreign firms from gaining access to advanced technologies. The suggestion has reportedly been made even for countries where investments have already been finalised like Spain, Thailand, and Hungary. It is proposed that only knockdown kits be sent for assembling, while key production processes involving critical technology remain within China.

Both these developments come against the backdrop of global concern over unfair advantages given to the Chinese EV sector. It is well-known that State-sponsored subsidies have propped up much of their manufacturing sector including automakers producing EVs. This has enabled exports to be made at prices far lower than is possible for other automobile companies.

To forestall the impact on domestic markets, both the United States and the European Union have recently imposed punitive tariffs on imports of Chinese EVs. In the EU, however, there are dissenting views from member countries like Germany and Hungary. A final call on higher tariffs will thus be taken only after a vote is taken over the next two months.

The new-found wariness of the Chinese authorities seems to stem from the fact that countries which are welcoming investments in the EV sector are simultaneously imposing heavy duties on the import of the finished vehicles. Turkey, for instance, has imposed a 40% duty on Chinese EVs even as it entered into tie-ups for setting up EV plants.

There are indications that India had been prepared to take the same route, judging by the latest economic survey. It had pointed to both Brazil and Turkey imposing heavy duties on EV imports while simultaneously taking steps to attract Chinese investments. It suggested following a similar route would result in the creation of domestic know-how down the road and would also help India plug into global supply chains.

On the other hand, the trade policy think-tank Global Trade Research Initiative (GTRI) has advocated that India should adopt an independent policy on EVs, otherwise, it could end up being dependent on China without any real benefits. The fact is that the northern neighbour has been scouting for new production sites in a bid to avoid the high tariff walls being put up by the developed world. This is the only reason that Chinese automakers like BYD, Great Wall Motors, and SAIC have made heavy investments in countries like Thailand.

For India, however, there are several risks to inviting investments in critical areas like EVs. The first is the concern that in case of any conflict leading to disruption in equipment supplies, production could come to a halt. The second is that excess reliance on cheap Chinese components and accessories can affect the development of domestic manufacturing. Finally, the objective of acquiring technical know-how is not likely to be achieved, given the latest move to protect advanced EV technology from being disseminated to other countries.

In this context, the new EV policy comes as a timely reminder that India, like China, needs to provide substantial support to domestic industry in this emerging sector. The incentives in the new initiative will be in addition to those provided under the production-linked incentive scheme. What is equally significant is the stress on public transport as well as commercial vehicles which are the most polluting on the roads. The focus on developing infrastructure for charging stations is also welcome as the lack of such facilities has been a major disincentive for EV buyers.

The new scheme comes in the wake of two rounds of an earlier subsidy scheme launched in 2015. As of now, EV sales account for only 6.5% of total vehicles sold in India compared to the global average of 18%. But this is just the beginning. The Indian EV market is projected to grow from $23.38 billion in 2024 to $117 billion by 2032. This expansion needs to be supported by long-term policies to aid in the energy transition so that India can overcome the damaging impact of climate change.

(Sushma Ramachandran is a senior journalist)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.