India's import dependence declines: the true effectiveness of the "Make in India" policy

Structural Decline in Manufacturing Import Dependence: Evidence of a Turning Point

For a long time, India's manufacturing import dependence has been seen as a microcosm of economic vulnerability. However, according to the latest report released by Bank of Baroda, this trend is reversing. The report, based on financial data from 1,372 non-financial companies, shows that the overall ratio of imports to net sales fell from 22.9% in FY19 to 22.3% in FY25. Although the decline appears modest, the deep changes in key areas are more indicative.

The electrical industry emerged as the most outstanding sector, with import dependence dropping sharply from 22.7% to 13.7%, a decline of nearly 9 percentage points. The chemicals sector fell from 27.5% to 22.5%, a drop of 5 percentage points. Sub-sectors such as capital goods and durable consumer goods also recorded significant improvements. These data are not random fluctuations but a concentrated release of the cumulative effects of policies over the past decade.

Policy-Driven Industrial Upgrading: From Make in India to the Semiconductor Mission

The Indian government's "Make in India" initiative launched in 2014, followed by the Production Linked Incentive (PLI) scheme and the India Semiconductor Mission 2.0, are reshaping the DNA of manufacturing. The decline in import dependence is not a simple "substitution" but a direct reflection of the extension of domestic supply chain capabilities from low-end assembly to high-value-added links.

Taking the electrical industry as an example, the sharp drop in import ratios is inseparable from the localization of electronics manufacturing—from mobile phone assembly to electronic components and solar panels, the capacity and yield rates of Indian factories are catching up with global standards. The improvement in the chemicals sector is related to the expansion of domestic production capacity for specialty chemicals and pharmaceutical intermediates, markets that were previously highly dependent on Chinese supply.

It is worth noting that these advances have occurred against the backdrop of ongoing pressure on global supply chains due to geopolitical tensions (such as the West Asia crisis and the US-China rivalry). Instead of being dragged into the quagmire of "deglobalization," India has achieved a certain degree of supply chain resilience through policy guidance.

From Aggregate to Structure: The Real Test of India's Manufacturing Competitiveness

The decline in import dependence should not be simply interpreted as a victory for Atmanirbhar Bharat (self-reliance). A more substantive measure is: Do domestically produced goods have international competitiveness? The data provide part of the answer.

First, the import substitution in the electrical industry has not come at the expense of exports—over the same period, India's exports of electronics and solar products have both risen, indicating that domestic production has met both domestic demand and external markets. Second, while imports in the chemicals sector have fallen, India's share of the global specialty chemicals market is increasing, showing that domestic companies have broken through the bottleneck of relying solely on raw material imports.However, the overall import ratio only decreased by 0.6 percentage points, indicating that dependence remains as high as 22.3%. This means that India still requires a large amount of foreign supply in areas such as machinery, high-end electronics, and critical minerals. In particular, India lacks independent capabilities in semiconductors, high-end equipment, and rare earth materials.

Commodity Prices and Global Challenges: The Shadow of Uncertainty

The report also points out that although rising commodity prices put pressure on corporate profits, the impact has not been widespread. This is due to the diversification of India's manufacturing sector—energy-intensive industries (such as steel and cement) have been affected, while consumer-oriented sectors like electronics and auto components have performed steadily thanks to strong domestic demand and better cost control.

However, global trade frictions, tariff barriers, and technology controls remain variables. For example, U.S. export restrictions on high-tech products could hinder the development pace of India's semiconductor industry. In addition, India still maintains a certain dependence on low-tariff imported finished products (such as Chinese electronic devices), and policy balance faces challenges.

Long-term Outlook: Can Manufacturing's Share of GDP Break Through the Bottleneck?

Over the past two decades, the share of manufacturing in India's GDP has hovered around 15%-17%, far lower than China (about 27%) and Vietnam (about 24%). A decline in import dependence is a necessary condition but not a sufficient one. The real turning point requires seeing:

• Manufacturing-led employment growth: Currently, India's service sector absorbs most of the high-quality labor force, while manufacturing mostly provides low-wage jobs.
• Technology spillover effects: Can foreign companies attracted through PLI generate R&D spillovers and nurture local suppliers?
• Infrastructure efficiency: Costs of electricity, logistics, and land acquisition still need improvement to maintain competitiveness.

The data from Bank of Baroda suggests that India may be on the eve of a transition from import substitution to export orientation. If it can replicate China's model from the 1990s—first expanding manufacturing scale through domestic demand, then upgrading technological capabilities and entering the global market—then the current decline in import dependence will only be the beginning of change.

Conclusion

India's manufacturing sector is entering a new growth phase, signaled by a decline in import dependence. Breakthroughs in sectors such as electrical equipment and chemicals prove that policy intervention combined with market forces can produce structural effects. However, the real path to becoming a manufacturing powerhouse still requires overcoming multiple structural obstacles. For investors and policymakers, closely monitoring changes in import ratios by sub-sector will become a key indicator for assessing the progress of India's economic transformation.