Finance Minister Nirmala Sitharaman’s call for Indian companies to manufacture domestically a substantial number of products that the country currently imports has an intuitive appeal. It taps into a long-standing aspiration: to turn India into a manufacturing powerhouse, reduce external dependence, and create jobs at scale.
Yet, as a policy proposition, it risks slipping into wishful thinking unless grounded in the structural realities of Indian industry. At one level, the logic is straightforward. Persistent trade deficits in key sectors reflect gaps in domestic capability. Substituting imports with local production could, in theory, strengthen the rupee, deepen industrial capacity and generate employment.
But this framing assumes that firms are choosing not to manufacture in India despite having the capability to do so and that demand is a certainty. The evidence suggests otherwise. The challenge is not intent, but execution capacity.
For over two decades, successive governments have tried to push manufacturing through a mix of incentives, policy reforms, and infrastructure investments. Yet the sector’s share in GDP has remained stuck at roughly 13-15%, well below the oft-articulated 25% target. This stagnation points to deeper frictions.
Logistics inefficiencies, especially in last-mile connectivity, continue to inflate costs. Ports remain encumbered by procedural delays and fragmented transport networks and limited real-time tracking reduce supply chain reliability. These are not marginal issues; they shape the competitiveness of Indian manufacturing in global markets.
Looking at the condition of the supplier ecosystem
Equally critical is the condition of the supplier ecosystem. Much of Indian manufacturing rests on micro, small, and medium enterprises, which often lack the scale, technology, and process sophistication required to meet global standards. As multinational companies look to diversify supply chains and source more from India, this gap becomes more visible.
Without significant upgrades in capability—ranging from digital adoption to quality control—domestic firms struggle to move up the value chain. Simply exhorting companies to produce more locally does little to address these constraints.
The problem is even sharper in high-technology sectors. India’s ambitions in semiconductors, advanced batteries, and electronics manufacturing hinge not just on capital investment but on ecosystem readiness. These sectors require deep technical expertise, coordinated supply chains, and sustained policy support.
The current ecosystem remains nascent, with limited players willing to take on the risks associated with large-scale investments. In general, import substitution, historically, has worked best when preceded by capability-building. East Asian economies did not simply mandate domestic production; they invested heavily in infrastructure, skills, technology, and export competitiveness before scaling up local manufacturing.
In contrast, a premature push for localisation risks raising costs for domestic firms and consumers alike, potentially making Indian products less competitive both at home and abroad. None of this is to suggest that the objective is misplaced. Strengthening domestic manufacturing is essential for India’s long-term economic trajectory. But the pathway matters. Policy must shift from exhortation to enablement.
This means prioritising logistics reforms, investing in digital and physical infrastructure, building cluster-based manufacturing ecosystems in Tier II and III cities, and creating structured industry-academia linkages to address skill gaps. In that sense, the FM’s remarks should be read as a reminder of the unfinished agenda.
Manufacturing scale cannot be summoned by intent alone; it must be built through sustained, coordinated effort across multiple fronts. If India is to reduce its import dependence meaningfully, the focus must remain on fixing the fundamentals. Until then, calls for domestic production of imported goods will remain more aspirational than operational.