GTRI said India, instead of targeting high volume based on sops, should target leadership in the newer generation of batteries for electric vehicles in the next phase. The idea, it suggested, was to allow growth of the domestic EV sector organically and not get dependent on imports from China, thereby preventing India from becoming an “EV colony” of China.
Challenges with India’s EV Sector
India has some unique challenges in its transition to electric vehicles. Some of the challenges found in India have not been seen in any other country with an advanced EV market. GTRI identified three significant challenges:
Fossil Fuel Addiction: India still generates 80 percent of its electricity from fossil fuel, which is mainly coal. Heavy dependence on non-renewable energy sources hinders India’s journey towards a more sustainable EV sector.
Inadequate Electricity Supply: For the most part, the country has a spasmodic supply of electricity; frequent power cuts might impact the consistent charging of EVs.
Dependency on Imports: Major components required in an EV, such as batteries and related essential minerals including lithium, cobalt, and nickel, have to be imported to the Indian market. This can raise questions over long-term sustainability for the domestic EV sector because there is such huge dependency on foreign suppliers-in particular, China.
In the light of the above-mentioned challenges, GTRI has been advocating caution while widespread usage of EVs was being encouraged through the avoidance of full-scale impetus in the form of heavy incentives or import-based initiatives, which would further dent the country’s reliance on China over critical supplies.
Operating Independence from Chinese
At this point, in its strategy, GTRI also warned India not to get into the trap of an “EV colony” with most of the EV components sourced from its supplier base in China. It added that it was necessary to ensure that market forces take the lead in the development of the sector rather than subsidies or incentives that may cause some risky exposure for the country in the long run.
The world EV market is now seeing a dramatic shift, with the United States, European Union, and Canada imposing heavy tariffs and restrictions on EVs and their parts manufactured by China, accounting for the lion’s share of its exports. In turn, China has shifted much attention to other markets such as ASEAN countries and India. However, GTRI also cautioned that manufacturing in these regions remains highly dependent on Chinese imports, with 70-80% of all the required parts, including batteries, sourced from China.
GTRI cautioned that as access to more mature markets becomes increasingly restricted, it is likely that excess production of EVs in China will start finding their way into India’s borders. This could lead to low-priced Chinese EVs undercutting Indian players and weakening their positions in the domestic market.
Focus on Advanced Battery Technologies
These risks, however, could partly be overcome if GTRI advises India to focus its efforts on winning leadership in the next generation of EVs using new-generation batteries. Investment in R&D for advanced battery technologies holds the key to this.
The other aspect is the battery recycling infrastructure that India needs to focus on, as recycling gives the much-needed impetus to reduce its dependence on imported raw materials. It will also, in the longer term, provide additional benefits in terms of sustainability for the EV ecosystem by developing local capabilities for such recycling.
Besides that, the think tank had stressed support for clean sources of energy towards feeding power at EV charging stations. This would solve not only the problem of dependence on fossil fuels but also enhance environmental benefits from the adoption of electric vehicles in India.
Global EV Market Turbulence
In the next few years, the global EV market is likely to see significant turbulence and transformation. Many countries, both in the developed and developing worlds, currently offer substantial subsidies and tax incentives to encourage the switch to electric vehicles. While this has made demand for EVs strong, it also has increased the competition among countries for the needed critical minerals in the production of the batteries.
Lithium, cobalt, and nickel are just some of the critical minerals that will define manufacturing EV batteries, and their availability will be one of the main factors in defining what shape the global EV industry will take in the near future. Most countries, including India, have faced the intractable problem of trying to ensure a secure supply of such materials, which are largely concentrated in a few countries. Therefore, strategic investments and partnerships in global supply chains would be vital in strengthening India’s position in this area.
Strategic Opportunities for India
While there are immense challenges, GTRI outlined that India could create a niche for itself in the world EV landscape. With concentration on new battery technologies, clean energy infrastructure, and decreased import dependencies, India can establish itself as a leader in the next phase of electric vehicle development.
Consequently, GTRI recommends that the Indian government should have a long-term vision with regard to sustainability and innovation for the EV sector rather than adopt short-term incentives for it. If this sector is allowed to develop organically, it would not only prevent India from becoming inordinately dependent on imports, but also would go a long way in laying the base for a strong homegrown EV sector in the country which can hold its own globally.
Source:
The report is based on information provided by the Global Trade Research Initiative, or GTRI, a think tank committed to monitoring analysis and insights into India’s economic policies and global trade developments.