Push towards EVs could increase India's import dependence on China

PM Narendra Modi with Chinese President Xi Jinping

China’s place as India’s top import source nation has remained unchallenged for decades. And, according to a report by Global Trade Research Initiative on April 29, inbound shipments are set to rise further, especially due to dependence on Beijing for industrial products and parts for new and emerging sectors such as Electric Vehicles (EVs).

GTRI is a private research think tank based out of India.

“So far, imports were carried out by Indian firms. Now with the entry of Chinese firms in Indian market, India’s industrial product imports are set to rise at an accelerated pace. As the Chinese firms operating in India will prefer sourcing most requirements from their parent firms, Indian imports will rise sharply,” the GTRI report said.

To be sure, the likely decision to not extend tax concessions under India’s electric vehicle (EV) policy to Chinese companies, as reported by Moneycontrol on April 22, may help tackle the fallout of this, but GTRI warns that reliance on parts for this sector from Beijing may also increase the import dependency.

Citing the joint venture between SAIC Motor (owner of the MG brand) and India's JSW Group that aims to sell over 1 million new energy vehicles by 2030, GTRI says that considering each vehicle has an Ex-Factory cost of $15000 and 60 percent import dependence of Electric Vehicle on China for battery, motor and components, the annual import bill will exceed $10 billion on EVs alone.

Chinese companies are involved in India's energy, telecommunications, and transportation sectors. They play critical role in smartphone, electronics, electric and passenger vehicles, Solar energy, engineering projects and many other sectors.

According to data from commerce ministry, India’s imports from China grew 3.6 percent on-year to nearly $94 billion in April-February of 2023-24. Compare this to the value of inbound shipments with the nation in the second spot – Russia, which was around a half at $55.6 billion during the same period.

Though, India saw a faster pace of growth in imports from Moscow at 36.6 percent during April-February FY24, inbound shipments from other key nations such as United Arab Emirates, USA and Saudi Arabia witnessed large contractions.

From 2019 to 2024, India's exports to China stagnated around $16 billion annually while imports from Beijing have surged from $70.3 billion in FY19 to over $101 billion in 2023-24, resulting in a cumulative trade deficit exceeding $387 billion over five years, GTRI said in its report.

China accounted for over 15 percent of India’s total goods imports of $677.2 billion in 2023-24, as per the report. Out of these imports from Beijing, $100 billion or 98.5 percent were in major industrial product categories.

When compared to India's global imports of these industrial products, of $337 billion, China's contribution is quite significant, representing 30 percent of India’s imports in this sector. Fifteen years ago, Beijing’s share was just 21 percent.

The surge in trade deficit in favour of China is concerning given efforts to depend more on made in India products.

This reliance is largely on account of industrial products imports that includes:

Electronics, Telecom, and Electrical Products
Machinery
Chemicals and Pharmaceuticals
Products of Iron, Steel and Base Metals
Plastics, articles
Textile and Clothing
Automobiles, other vehicles
Medical, Leather, Paper, Glass, Ships, Aircraft, and remaining categories

“This growth in imports from China, has been much faster than India’s overall import growth, with China’s exports to India growing 2.3 times faster than India's total imports from all other countries,” GTRI said.

While, India's import of industrial goods from China soared 215.3 percent rising from $25.3 billion during 2007-10 to $79.7 billion in 2020-22, inbound shipments from the rest of the world grew by only 94.5 percent during the same period.