Challenge behind buying domestic amidst India’s import dependence

By N.S. Venkataraman*  

When U.S. President Trump announced a 50% tariff on many goods exported from India, followed by an increase to 100% on branded drugs, heavy trucks, and furniture, concerns arose in India about the impact on exports. It became evident that Indian exports to the U.S. could decline substantially, raising questions about how India might respond. The general consensus that followed was that India should reduce its dependence on exports and strengthen domestic consumption of goods produced within the country.

Prime Minister Narendra Modi responded by urging citizens to buy domestic goods and substitute imports wherever possible. The logic is that increased domestic use could help compensate for a drop in exports. While the principle appears sound and has public support, its feasibility depends on several factors.

A key challenge is that domestic supply has not been keeping pace with growing demand. Over the past eleven years, India has become the fourth-largest economy in the world, with real GDP growth at 6.5% and nominal GDP tripling between 2014–15 and 2024–25. The economy has grown from $2 trillion to $4.3 trillion during this period, driven largely by services and agriculture, supported by policy reforms and infrastructure investment. However, the manufacturing sector’s share of GDP remains around 17%, far below India’s potential. This imbalance has limited job creation and increased dependence on imports.

India continues to import heavily across multiple sectors. Around 50% of Active Pharmaceutical Ingredients (APIs) come from abroad, despite strong performance in formulations. Solar and wind energy capacity has expanded, but components for these projects are largely imported. Electronics, semiconductors, rare earth magnets, crude oil, and bulk chemicals are other areas of significant import dependence. This trend leaves the economy vulnerable to external supply shocks.

Boosting domestic production is essential. The government has emphasized Atmanirbhar Bharat and Make in India, stressing that goods made in India should also use materials produced domestically. However, global competitiveness in quality, price, and sustainability remains critical if Indian products are to replace imports and succeed in export markets.

The question is why manufacturing has not expanded despite India’s advantages in land, resources, demographics, and capital availability. Technology emerges as the key constraint. Many industries continue to rely on foreign technology for even established product lines, with overseas suppliers often charging high fees and imposing tough conditions. This reliance has slowed the growth of indigenous manufacturing capacity.

Government initiatives such as the Production Linked Incentive (PLI) scheme are intended to promote technology development and R&D. Yet, private sector participation in research remains limited. Around 75% of India’s R&D funding comes from the government, unlike developed countries where the private sector leads. Despite significant funding, government-owned research institutions and universities have shown limited results, often without aligning research priorities to market needs.

Strengthening R&D is therefore critical. Successful models, such as China’s policy of encouraging multinational companies to set up R&D in collaboration with domestic firms, highlight the role of joint sector research initiatives. India could benefit from similar approaches, with private sector involvement bringing in capital, accountability, and market-driven innovation. Universities, too, need to align research agendas with industrial and consumer demand, while ensuring accountability for outcomes.

India has made important strides in areas such as space, defense, and nuclear technology, but progress across other industrial sectors remains inadequate. Overcoming the technology constraint is central to reducing import dependence and making the Prime Minister’s call to buy domestic goods feasible. Without a stronger technology base, self-reliance will remain limited, and the goal of substituting imports with domestic products will not be fully realized.

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*Trustee, Nandini Voice for the Deprived, Chennai