Chemicals to capital goods: What is driving India’s push to indigenise 100 critical items

The Indian government is actively promoting the domestic production of critical items, such as chemicals and capital goods, in response to potential export restrictions imposed by China on these sectors. These restrictions, set to take effect on November 18, could have significant implications for India's solar equipment and heavy machinery industries, including tunnel boring machines.

The Department for Promotion of Industry and Internal Trade (DPIIT) is collaborating with relevant ministries to enhance domestic production capabilities. Several key sectors have been identified for potential indigenisation, including petrochemical products, solar manufacturing technologies, and tunnel boring machines. The solar manufacturing value chain in India currently relies heavily on imported cells, with only around 2 GW of installed ingot and wafer manufacturing capacity.

This dependence on foreign equipment and materials poses a challenge to the expansion of domestic solar manufacturing capacity. To address this, the government is exploring partnerships with European and Japanese manufacturers to source capital goods, which could increase production costs by 20-40%. In addition to solar manufacturing, the government is also focusing on petrochemicals, a crucial sector that serves multiple industries, such as textiles, pharmaceuticals, and fertilizers.

High-value petrochemical products targeted for domestic production include PVC, polyethylene, polypropylene, polystyrene, and ABS. To regulate imports, the government has imposed a minimum import price (MIP) of $0.766 per kg on PVC Suspension Resin (S-PVC). Despite these efforts, India's trade deficit with China remains substantial, standing at over $100 billion in the current fiscal year.

The trade imbalance is a cause for concern as China's global trade surplus continues to grow, threatening to diminish the shares of other economies in global trade.