India’s $51 Billion Import-Substitution Drive: A Test of Industrial Capacity, China Dependence and Protectionism

# Avinash Sharma

India is preparing to launch a new drive to manufacture domestically nearly 100 sensitive imported products worth an estimated $51 billion. Electric vehicles, solar equipment, textiles, footwear and industrial materials are reportedly among the immediate priority sectors.

However, the initiative has not yet been formally released as a government policy with a detailed product list, budget, incentive structure and implementation timeline. As the available information is based on unnamed government officials, it should be understood as an evolving policy direction rather than a finalized national programme.

An internal Indian assessment has reportedly identified imported products worth a total of $398 billion that could potentially be replaced through domestic manufacturing. Of that amount, products valued at around $51 billion have been selected for immediate attention because of their importance to economic security and supply-chain resilience.

The initiative is not limited to reducing India’s import bill. It is connected to broader objectives involving industrial security, reduced dependence on China, job creation, technology transfer and a stronger Indian position within Asian supply chains.

India’s Economic Survey 2025/26 has argued that the country should move beyond conventional import substitution toward “strategic resilience” and eventually “strategic indispensability.”

This does not mean constructing a closed economy in which every product is manufactured domestically. The central objective is to build minimum domestic capacity in sensitive sectors, diversify supply sources, maintain essential reserves and secure an influential role in global value chains.

The COVID-19 pandemic, wars, disruption of maritime routes, export controls and technology restrictions have demonstrated the risks of excessive dependence on a single country or supplier.

Developing alternative capacity in batteries, solar cells, industrial chemicals, critical minerals, electronic components and manufacturing equipment has therefore become a matter of national economic security rather than merely trade policy.

India’s main challenge lies not only in the volume of imports but also in their composition. A significant share of imports from China consists not of finished consumer products but of machinery, chemicals, electronic components, solar materials and manufacturing equipment required by Indian industries.

In fiscal year 2025/26, India imported goods worth approximately $132 billion from China. A substantial part of those imports consisted of intermediate products and machinery needed to keep Indian factories operating.

Any attempt to reduce Chinese imports on the basis of political slogans rather than economic realities could therefore raise costs for Indian manufacturers before affecting China.

If affordable and reliable intermediate products are suddenly subjected to high tariffs or restrictions, goods may still be manufactured in India but become significantly more expensive. Consumers, small businesses and exporters would all bear the consequences.

Self-reliance is not simply a description of where production takes place. It is the combined outcome of competitive costs, technological capacity, quality, production speed and export capability. Making imports more expensive will not automatically create sustainable or globally competitive domestic industries.

India has achieved some early gains through its Production Linked Incentive programme, commonly known as PLI. According to government data, schemes implemented across 14 sectors had attracted investments exceeding 2.16 trillion Indian rupees by December 2025.

The projects generated production and sales worth more than 20.41 trillion rupees, exports exceeding 8.30 trillion rupees and more than 1.43 million direct and indirect jobs.

These figures are important, but it would be premature to treat them as final proof of success. Growth in total production and exports alone is insufficient. The more decisive questions concern domestic value addition, ownership of key technology and intellectual property, and the opportunities created for local suppliers.

The success of the new campaign cannot be measured merely by the presence of a “Made in India” label.

It will depend on who designs the products, who owns the patents, where essential machinery and components originate, what share of production goes to domestic suppliers and how much of the value generated through exports remains within India.

The challenge is particularly visible in the electric-vehicle and solar industries. India reportedly spends around $3 billion annually on imported solar cells, while domestic manufacturers face intense competition from cheaper Chinese products.

However, imposing excessive duties on imported solar cells or battery materials to create an artificial market for more expensive domestic products could slow India’s transition to clean energy.

Removing Chinese products from solar panels or electric vehicles should not become the sole objective. India must build industries capable of competing on price, quality, production speed and technology.

Permanent protection may provide companies with a guaranteed market, but it does not ensure innovation or efficiency. Without competitive pressure, protected firms may become dependent on public support rather than developing world-class capabilities.

The footwear industry offers another example in which production speed matters as much as manufacturing capacity.

According to India’s internal assessment, the country imported moulds worth approximately $483 million for the production of footwear soles. Such moulds reportedly take around two weeks to manufacture in India but only three to five days in China.

This illustrates India’s real industrial challenge. The country requires more than tariff protection. It must develop design capabilities, modern equipment, reliable supplier networks, skilled workers, faster manufacturing and timely delivery systems.

India has considerable potential in labour-intensive sectors such as textiles and footwear. Its vast domestic market, large workforce and entrepreneurial base are major advantages.

Yet cheap labour alone cannot support world-class manufacturing. Reliable electricity, faster customs procedures, affordable logistics, modern machinery, design capacity, skilled labour and timely access to raw materials are equally essential.

To compete with Bangladesh, Vietnam and China, India must continue improving its costs, production timelines and quality standards.

Plans to promote joint ventures with companies from South Korea, Taiwan, Germany and Italy appear practical. Such partnerships could bring technology, capital, management expertise and access to international markets.

However, replacing Chinese imports with imports from another country is not self-reliance. It merely changes the geography of dependence.

Joint ventures must therefore be linked to the development of Indian suppliers, domestic research, technical training, participation in intellectual property and clearly defined export targets.

Long-term industrial capacity will not emerge if foreign companies perform only final assembly in India while retaining core technologies, high-value components and essential materials abroad.

India should pursue selective risk reduction rather than complete economic disengagement from China.

China’s industrial strength was built over decades through infrastructure, dense supplier networks, production speed, technical expertise and economies of scale. It cannot be replaced quickly through tariffs or restrictions.

A more realistic approach would be to continue trading with China while developing alternative suppliers and domestic capacity in strategically sensitive sectors.

Strategic resilience does not mean severing all economic ties. It means controlling risk while expanding national decision-making capacity.

Suddenly making competitive Chinese inputs more expensive could weaken India’s own manufacturing and exports. Import controls should therefore be introduced only after objective assessments of their effects on production costs, consumer prices and export competitiveness.

The success of the campaign should be measured not by the amount of subsidies distributed but by the results achieved.

Each sector should have clear targets for production costs, domestic value addition, exports, patents, skilled employment and the development of local suppliers.

Incentives should be time-bound and linked to measurable performance. Keeping industries that fail to become competitive under permanent public protection is not industrial policy; it is protected inefficiency.

India possesses a large market, considerable capital, an extensive workforce and a growing technological base.

But unless it moves from assembly operations toward technology development, product design and the manufacture of high-value components, India risks remaining a major assembly centre rather than becoming one of the world’s leading manufacturing hubs.

The proposed $51 billion drive is neither inherently a protectionist mistake nor an historic achievement simply because it has been announced. Its outcome will depend entirely on the quality of implementation.

If linked to competitive costs, technology transfer, domestic value addition and export discipline, the initiative could reduce India’s exposure to sensitive imports and strengthen its place in Asian production networks.

But if the policy remains limited to high tariffs, subsidies and political slogans, consumers will face more expensive products, industries will bear higher input costs and dependence will merely shift from one foreign country to another.

India’s real challenge is not to manufacture every product domestically. It is to become reliable, competitive and indispensable in strategically important sectors.

Self-reliance becomes a source of strength only when it does not isolate India from the global economy but instead transforms the country into an industrial and technological centre that cannot easily be replaced within global value chains.

India must therefore prioritise competitiveness, technology transfer, domestic value addition and export discipline over permanent protection.

Only by using its vast market and workforce to become an indispensable part of global value chains can the proposed import-substitution campaign be transformed into genuine economic self-reliance.