Government’s economic assessment warns that high import intensity of EV production—especially from deficit countries—needs consideration in setting incentive levels; calls indigenization "urgent task"

The Economic Survey 2025-26 has issued a pointed warning about the "very high" import intensity of electric vehicle production, particularly from countries with whom India has "persistent and large trade deficits."

The Survey, released on January 28, states that "the extent to which electric mobility is incentivised in the short run needs to keep this factor in mind," and describes indigenizing technology and raw materials for electric mobility as "an urgent task."

The Survey presents the economic case for electric mobility in India: "electric mobility makes economic sense in a country which imports most of its oil and has abundant renewable energy and coal." This framing positions EVs as a solution to India’s oil import dependence—a recurring concern given energy security implications and trade balance effects.

The Survey notes that India’s energy transition should involve "diversification away from fossil fuels," with electric mobility as one pathway given the country’s renewable energy potential.

The Dependence Concern

However, the Survey immediately follows this positive framing with a concern: "it raises important challenges that need addressing."

The primary challenge identified is stark: "The import intensity of E-Vehicle production – especially from countries with whom India has persistent and large trade deficits- is very high."

This statement directly addresses the irony that a strategy meant to reduce oil imports could create new import dependencies in batteries, electronics, and other EV components—potentially from countries where India already runs large trade deficits.

While the Survey does not explicitly name countries, the reference to "persistent and large trade deficits" clearly points to China, which dominates global EV battery supply chains and related component manufacturing.

India’s trade deficit with China has been a long-standing concern, and the Survey’s warning suggests policymakers are aware that aggressive EV adoption without indigenization could worsen this deficit by replacing oil imports with battery and component imports.

The Survey’s trade chapter separately discusses China’s export controls on "certain dual-use item exports to Japan, including materials crucial to the automotive industry," indicating awareness of supply chain vulnerabilities.

The Survey makes a specific policy recommendation: "The extent to which electric mobility is incentivised in the short run needs to keep this factor in mind."

This statement is notable for suggesting that incentive levels—including schemes like PM E-DRIVE (₹10,900 crore), PLI-Auto (₹25,938 crore for AAT vehicles), and PM e-Bus Sewa (₹3,435 crore)—should be calibrated with import dependence considerations.

The phrase "in the short run" suggests the concern is about the immediate period before domestic manufacturing matures, rather than opposing EVs fundamentally. The Survey states unequivocally: "Indigenising the technology and raw materials for electric mobility is an urgent task."

Current Import Intensity

While the Survey does not provide specific data on EV import content, industry estimates suggest import content of EVs—particularly battery packs and cells—can be 40-60% or higher depending on the vehicle and degree of localization.

The PLI scheme for Advanced Chemistry Cell (ACC) batteries with ₹18,100 crore outlay for 50 GWh capacity represents an attempt to address battery import dependence. The Survey notes "40 GWh capacity already awarded" out of this target.

However, even domestic battery manufacturing requires imported critical minerals and potentially imported manufacturing equipment and technology, meaning the import dependence extends beyond finished

The Survey notes progress on battery localization through the ACC battery PLI scheme, with 40 GWh of 50 GWh capacity awarded. This represents movement toward addressing the most significant import content in EVs.

However, battery cell manufacturing still requires critical mineral imports. The Survey separately discusses how countries are "securing critical minerals and technological resources in a manner reminiscent of a new colonial scramble," indicating supply security remains a concern.

India imports roughly 85% of its crude oil requirements. The Survey’s logic is that EVs can reduce this dependence by using domestic renewable energy. However, if EV production has 40-60% import content, the question becomes whether replacing oil imports with EV component imports represents genuine improvement in energy/economic security.

The Survey’s discussion of critical minerals competition suggests one import dependence (oil) might be replaced with another (battery minerals), with the latter potentially more concentrated in specific supplier countries. Critical minerals are often monopolized or oligopolized—lithium processing dominated by a few countries, rare earths by China—potentially creating supply vulnerabilities similar to or worse than oil markets.

Technology vs. Assembly

The Survey’s emphasis on indigenizing "technology" suggests concern about India becoming merely an assembly location for EVs using imported components and technology, similar to patterns in some other manufacturing sectors.

True indigenization requires capability in:

• Battery chemistry and cell manufacturing
• Electric motor and controller design
• Power electronics
• Vehicle software and connectivity systems
• Thermal management systems

Simply assembling these imported components, even with demand incentives, doesn’t address the import dependence concern.

The Survey elsewhere documents 62.5% CAGR in EV registrations from FY20-FY25, indicating rapid adoption. This growth trajectory, if continued without adequate localization, would accelerate import dependence.

The policy dilemma is balancing the pace of EV adoption (climate goals, oil import reduction, industrial policy) with the degree of import dependence (trade balance, supply security, industrial capability).

The Survey suggests current policy may be tilted too far toward adoption speed without sufficient attention to localization.

The PLI schemes represent government’s attempt to address import dependence through production incentives tied to domestic value addition. The PLI-Auto scheme requires manufacturing of Advanced Automotive Technology products, not just assembly.

The SMEC scheme for EV passenger cars includes "mandatory phased Domestic Value Addition (DVA) targets" for companies receiving customs duty concessions, explicitly addressing the localization concern.

Whether these DVA requirements are stringent enough to address the Survey’s import dependence concern is unclear.

The Economic Survey’s treatment of electric mobility is balanced: acknowledging economic logic while flagging import dependence as a significant concern requiring urgent attention.

The message appears to be that India should pursue electric mobility, but in a way that builds genuine domestic capability rather than replacing one import dependence (oil) with another (EV components and materials).

For policymakers, this suggests incentive schemes should increasingly emphasize localization requirements and timelines rather than just demand stimulation. For the automotive industry, it signals that long-term success in EVs will require technology development and supply chain localization, not just assembly of imported components.