The Rise of India's Manufacturing: A Structural Turning Point in Declining Import Dependence

India's manufacturing sector is undergoing a structural transformation that has been underestimated. A recent report by Bank of Baroda reveals a key trend: despite ongoing pressure on global supply chains due to the West Asia crisis, India's import dependence in sectors such as electrical equipment, chemicals, capital goods, and durable consumer goods has significantly declined.

The report analyzed 1,372 non-financial companies and found that the overall ratio of imports to net sales dropped from 22.9% in fiscal year 2019 to 22.3% in fiscal year 2025. Among these, the electrical sector saw the most notable decline, falling sharply from 22.7% to 13.7%, while chemicals fell from 27.5% to 22.5%. Behind these figures lies the concentrated release of cumulative effects from years of India's manufacturing policies.

Initiatives such as "Make in India" and "India Semiconductor Mission 2.0" are transforming from slogans into tangible production capacity. Import substitution in the electrical sector has been particularly successful, driven by the rise of a domestic electronics manufacturing ecosystem—from mobile phone assembly to component localization, India is building a more complete value chain. In the chemical sector, despite fluctuations in commodity prices, increased domestic production capacity has effectively squeezed the space for imports.

It is worth noting that the decline in import dependence is not universal. The report points out that rising commodity prices still impact some sectors, but the scope is limited. This indicates that the improvement in India's manufacturing is structural: it is not driven by short-term advantages from exchange rate depreciation or subsidies, but rather by capacity building and enhanced supply chain resilience.

From a broader perspective, India is rewriting its own narrative of import dependence. Traditionally, India relied on imports of capital goods and intermediate goods to support consumption and exports, which made the current account vulnerable. Now, import dependence in capital goods and durable consumer goods is also narrowing, meaning that India is not only producing final products but also moving up the value chain.

Global supply chain restructuring offers India a historic window. Multinational companies are pursuing a "China+1" strategy, and India, with its demographic dividend and market potential, has become a major beneficiary. But what sets India apart is that it has not simply replicated China's export-driven model; instead, it prioritizes meeting domestic demand while enhancing export competitiveness. This parallel strategy of "inward self-sufficiency" and "outward expansion" is reducing India's exposure to external dependence.

Of course, challenges remain. India still has a high import dependence in high-end fields such as precision machinery and semiconductors, and the effects of the semiconductor mission will take time to materialize. In addition, trade policy uncertainties and infrastructure bottlenecks remain constraints.

But the direction is clear: India's manufacturing is no longer just a processing hub for foreign companies; it is gradually becoming a platform for independent innovation. The decline in import dependence is only the beginning. The real test lies in whether it can continuously improve technological content and added value. If this trend can be sustained, India will not only reduce its vulnerability to external shocks but may also occupy a more important position in the global manufacturing landscape.