India is cornered by China’s lock on tech

By Andy Mukherjee

Last year, India’s richest tycoon had Washington breathing down his neck. This year, Beijing is giving him a hard time.

Now that Mukesh Ambani’s refinery is pivoting away from buying Russian oil, falling in line with President Donald Trump’s diktat that Indian billionaires stop funding Vladimir Putin’s war machine, the energy czar has a new worry: China’s curbs on technology transfers.

Ambani’s flagship conglomerate, Reliance Industries Ltd., has paused plans to make lithium-ion cells after failing to secure Chinese knowhow, Bloomberg News reported last week, citing people who did not want to be identified. Xiamen Hithium Energy Storage Technology Co., with which Reliance was in talks to license cell technology, withdrew from the proposed partnership, the article said. While this particular project aims to store solar power and use it to produce nonpolluting fuels like green hydrogen, similar Chinese restrictions are also expected to apply to electric-vehicle battery tech, stunting the growth of India’s EV industry.

While President Xi Jinping’s hawkish stance on technology exports isn’t specifically directed at India, it does call for a more realistic assessment of the recent thaw in relations between the world’s two most-populous nations.

Direct flights, suspended during the pandemic and kept in abeyance after 2020 border clashes, have resumed, and New Delhi is reportedly open to allowing Chinese firms to bid for government projects. Recently Prime Minister Narendra Modi’s Bharatiya Janata Party met with a Chinese Communist Party delegation in its office, despite China’s air-defense support to Islamabad during last May’s India-Pakistan conflict.

But just because ice is melting, there’s no reason to drink it up as Kool-Aid. The détente is nowhere near where the two neighbors can consider each other as natural partners. While Indian corporate chiefs — from Ambani to Gautam Adani and Sajjan Jindal — are looking to China as a solution to their technology deficit, Beijing views India opportunistically, as a market where its firms can offload some of their excess production.

Batteries are a prime example. While Beijing will want Indian automakers to keep sourcing Chinese-made lithium-ion cells and packs, the technology to manufacture them now requires a State Council license before it can be transferred overseas. Getting past that hurdle will be challenging, and not just for large energy-storage projects like Ambani’s. Exide Industries Ltd., which has been making traditional lead-acid batteries in India since 1947, is also betting on Chinese knowhow for lithium-ion cells. So is its rival Amara Raja Energy and Mobility Ltd., which has a licensing agreement with a unit of Hefei, Anhui-based Gotion High-Tech Co.

An outsize dependence on China underscores the limits of Modi’s “Make in India” industrial policy. Nearly five years ago, New Delhi earmarked 181 billion rupees ($2 billion) in fiscal incentives for setting up 50 gigawatt-hour of cell production capacity. So far, only 1 GWh has been installed. Meanwhile, imports of lithium-ion cells by Indian EV makers and others has grown 2.5 times to $3 billion. Of this, 75% comes from China.

Reliance says its alternative-energy plans remain on track. It’s setting up a 40 GWh battery storage system assembly and cell manufacturing factory, with commissioning planned in phases during the year. “We have already received all the critical production line equipment at site with a plan to further scale up to 100 GWh annual capacity,” the company said Friday while presenting its quarterly earnings.

Although even Europe has floundered on the path to building a locally owned battery industry, it remains central to Ambani’s ambitions. Still, from policymakers’ perspective, the technology squeeze is very real. It adds to New Delhi’s growing worries about rare earths, a vulnerability it woke to up to last year when Beijing’s export curbs gave it leverage against Washington and led to a truce in the US-China trade war.

Even with the accord between Trump and Xi, China is still restricting the rare-earth elements the US needs to produce its own permanent magnets. There’s no reason why Beijing should make availability any easier for Indian automakers.

New Delhi’s solution once again is to throw money at the problem: $800 million in subsidies for making magnets locally. But will funds alone ease the crunch? A top Indian geophysicist told the BBC that he’s skeptical. Although India has significant reserves of rare earths along its coastline, it has very little mining. For more than a decade, the state-run miner has sold its output to the Japanese — a practice that is reportedly being stopped only now when local electric carmakers are already facing magnet shortages.

Even if India steps up mining and processing, it may still come up short on some critical minerals that it doesn’t have in extractable quantities. The US will also struggle to shake off China’s chokehold in a hurry. But without developing technologies to make high-performance magnets out of domestically available minerals, the dependence on China may be more durable for India.

In fact, Indian firms’ aversion to spending money on research is eroding their sway even in their immediate neighborhood. Nepal, where three out of four cars sold are now electric, China’s BYD Co. has become the market leader. The erstwhile dominance of Indian gasoline and diesel cars has evaporated, and Indian-made EVs are finding it hard to compete on quality and price.

China’s lock on knowhow has hemmed India in, and Beijing has no reason to arrest the ballooning trade surplus in its favor. Just as Ambani’s preeminent position within India Inc. made him Exhibit A of the rapid unraveling of New Delhi’s three-decade-long courtship of Washington, his hiccups with sourcing Chinese technology are once again emblematic of a broader trend.

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