Digging Deep: Tunnel Boring Machines and India’s China Challenge

Multiple reports have confirmed China’s restrictions on the export of tunnel boring machines (TBMs) to India despite the two countries having concluded a deal on the disengagement of troops in Depsang and Demchok. This has led observers and experts to underline China’s increasing willingness and capabilities to halt India’s growth story. 

As India frames a response to counter China’s economic coercion, it’s useful to assess the strategic impact of China’s economic restrictions. Our study of trade in TBMs indicates that India’s ecosystem is not as vulnerable to China’s actions as some of these reports suggest. We should respond to China from a position of strength. Here’s why. 

The data sourced from India’s Ministry of Commerce shows  India’s import dependence on China for TBMs (standard and self-propelling) by value and volume over the last six years.  The graphs show that for the self-propelled TBMs, India hardly exhibits any dependence on imports from China, except for by value in 2021 and 2022. Even in these years, the dependence doesn’t appear too concerning. Secondly, 2021 and 2022 witnessed a huge uptick in India’s import of self-propelled TBMs, with the majority sourced from outside China. 

Note: The value and volume of import may not align with each other as payments for contracted goods are spread over Financial Years

These two years, however, also saw imports from China rise compared to previous years. Finally, the total import of self-propelled TBMs in the post-2022 period returned to the pre-hike years of 2021 and 2022, of which China’s share was minuscule.

As for the standard TBMs (both in terms of value and volume), India’s dependence on China in 2019 amounted to almost 100%. However, India’s imports of standard TBMs show growing diversification in the following years. 

Note: The value and volume of imports may not align with each other as payments for contracted goods are spread over Financial Years

Secondly, India’s imports of standard TBMs (by value) more than doubled in 2022 compared to the previous years before witnessing a drop of 85% in 2023. The numbers for 2024 (Apr-Oct) have remained consistent with 2023 numbers.

Two key trends become apparent based on the import data. First, there is indeed a drop in imports of standard TBMs from China in the current fiscal years, and the recent Chinese export restrictions on India may explain the fall. But that doesn’t explain the drop in 2023 (assuming the restrictions are recent). This brings us to the second key trend - the diversification away from China was already underway from 2020 onwards. And India succeeded in achieving it to quite an extent. This may well be the alternative explanation for India’s reduced imports. 

The news on the domestic front further supports this view. According to the Managing Director of Herrenknecht, a German company and a leading global player in the design and manufacturing of TBMs, all the metro TBMs supplied by Herrenknecht to India in the last two years were manufactured at their facility in Chennai. Herrenknecht is also slated to supply India with two mega TBMs - the largest to be deployed in the country. These developments certainly indicate that India may not be as vulnerable to Chinese coercion. 

In this light, China’s export restrictions do not equip it with any strategic leverage vis-a-vis India. A recent study by one of us finds that a majority of items for which India depends on China are substitutable in the short to medium-term. China’s attempts to use export restrictions vis-a-vis India will only force further diversification and, thus, diminish whatever leverage it holds. 

Consequently, it appears that the antidote to China’s overcapacity is China itself. China’s move towards self-sufficiency and worsening business environment are already pushing foreign companies away. Blocking non-sensitive exports will further isolate the Chinese economy.

The opportunity is India’s to take. The government must undertake the tax, trade, and policy reforms preventing companies from moving their manufacturing to India. Only PLIs won’t do. The push from China exists, but can we pull companies on our side?

Authors