Govt Scans China Firms Exploiting EV Sops Loophole

The Department for Promotion of Industry and Internal Trade (DPIIT) is scrutinizing Chinese automobile companies having ties with suspected Indian proxy partners but lacking strategic plans for building capabilities in the country.

The crackdown comes as the government spends heavily to promote the electric vehicle market in India, with a subsidy of over ₹5,000 crore under the FAME II scheme for hybrid and electric vehicles in the current fiscal year. In addition, the government’s approval of a ₹18,000 crore production-linked incentive (PLI) scheme in 2021 further supports the manufacturing, export, and storage of lithium-ion cells crucial for electric vehicle development. Moreover, the government intends to write to industry associations to apprise their members of the issues and warn them against acting as a front for Chinese companies.

“Proxy partnerships with Indian companies with no capabilities to develop the industry in India in the longer term will defeat the entire purpose of the government’s policies to enable the transformation of the Indian auto sector to EVs and instead create huge dependence on China and Chinese companies. So, the government is now planning to nip in the bud such deals with ‘paper partners’ in India that bypass the government’s vision of making batteries and developing the EV manufacturing ecosystem in India," one of the two people said on condition of anonymity. Amid escalating tensions with China, the government amended the FDI policy in April 2020, through Press Note 3, to prevent opportunistic takeovers by China during the covid-19 crisis when equity valuations had slumped. It made prior approval mandatory for foreign investments from neighbouring countries and continues to be rigorously enforced. The second person cited above said the government is worried about Chinese influence on the EV market primarily because of its dominance of lithium-ion batteries. So, the government is closely watching how India’s EV market, which is at a nascent stage, develops. Queries emailed to spokespeople for the commerce and industry ministry remained unanswered till press time. India’s EV companies are expected to receive $12.6 billion in investments across the automotive supply chain over the next five years, with more than 60% of the investments to be made in automakers and the rest in battery manufacturing, according to industry estimates. “India does not want to be dependent on China and Chinese companies in the long term. China has clear dominance in LFP (lithium ferrophosphate) batteries as well as control of most of the lithium mines," the second person said, also requesting anonymity.

Without naming the company, the person said that an Indian company picked up a stake in a Chinese auto firm with links to the Chinese government, and such a deal could “cause a larger problem for the ecosystem by providing a lease of life to Chinese companies".

Several Chinese investment applications in India have been waiting for approval for an extended period, Mint has reported, citing Chinese diplomats. The FDI policy amendment aimed to scrutinize the beneficial ownership of investments from certain countries, thereby increasing scrutiny on Chinese firms.