India’s Economic Strategy

By Dhurjati Mukherjee

The spectacular victory of the BJP in the states of  West Bengal, Assam, and Puducherry puts on the party the extra burden of reviving the states. With Finance Minister Nirmala Sitharaman, banking on domestic consumption and its sheer absorbing capacity, boosting the economy may work to a limited extent. She requested industry captains to step up and capture the domestic demand currently met by foreign markets. “Business are importing a lot of tools which are intermediary, so there is some more agility which I expect from the Indian industry”.

The recent observations of the finance minister to step up manufacturing to counter imported goods and stop valuable foreign exchange outflow is well-timed. However, considering this fiscal, economists are of the opinion that rural income and consumption and crop yields may decline due to week rains and possible El Nino impact. There is thus a need to go deep into the problem, for which the government has to be specific and come out with an action plan in clarifying the challenges faced by Indian manufacturers and what could be done to start producing import substitution products in the country.

India’s share of global manufacturing has remained stagnant at around 2.8 percent for a decade, which indeed is quite low for a country aspiring to gain developed statuswhileChina has occupied a share of 30 percent. Reports indicate that the production linked incentive scheme launched by the government has primarily attracted assembly operations rather than high-value manufacturing. Most of these assembly units are dependent on import of componentsfrom China. Thus, increased exports of the country mean increased imports from China. Modi has failed to build the indigenous base in India though some progress has been made.

China appears to have emerged as an integral part of the Indian manufacturing supply chain, exporting close to $150 billion in FY26, a report published by trade intelligence firm GTRI observed. Even as it accounted for around 16 percent of India’s total imports, China’s dominance is significantly higher in industrial goods, supplying as much as 30.8 percent of the country’s requirements. Four vital sectors such as electronics, machinery, computers and organic chemicals were the largest recipient of Chinese imports. Together they accounted for 66 percent of India’s total imports from China valued at around $82.6 billion. This dependence is less about consumption and more about weak domestic production.

Indian industry relies heavily on Chinese inputs which include electronic parts, EV batteries, solar modules, APIs and speciality chemicals that are hard to replace at scale. As a result, analysts rightly point out that even as India tries to grow exports, its supply chains remain tied to China which is undoubtedly far ahead in technology and efficiency. Chinese hegemony in the Indo-Pacific remains firm as India cannot stand the competition of Beijing. As New Delhi recalibrates its foreign policy to accommodate Beijing’s rise, most countries realize that India is no longer an aspiring peer competitor.

Meanwhile, reports indicate that foreign investors pulled more than $20 billion out of Indian equities in the first four months of this calendar year, surpassing last year’s record annual exit as a surge in crude oil prices triggered by the West Asian conflict dented sentiment. The exodus has been exacerbated by a hawkish stance from the US Federal Reserve, which has held rates making the US Treasury yield more attractive alongside a strengthening US dollar.  If deprecation pressure persists, the RBI may have to explore steps to curb oil-related dollar demand in the spot market, restrict gold imports and tighten monetary policy. The surge in oil prices above $120 per barrel may lead to inflation concerns intensifying.

The declining rupee, which is now around Rs 95 per dollar, has been an area of concern with cost of imports rising added to the increase in the price of oil and gas as well as subsidies on fertilisers and industrial raw materials with the onset of the West Asian conflict and uncertainty around the US-India trade deal. Thus, the country enters the fiscal year “at the intersection of domestic resilience and external turbulence”, as per a government report with the future looking not quite encouraging.

Even the IMF has warned that risks for the country are tilted towards high inflation, wider fiscal and external deficits and slower growth, specially is energy and fertiliser supply disruptions persist. The crude oil basket averaged $113 per barrel in March, just under $115 per barrel through April end.

It can be discerned that the lack of manufacturing boost may obviously be related to lack of technological upgradation and ensuring economies of scale, on the one hand, and the inflow of financial support and participation, on the other. The only area of satisfaction is that some foreign tie-ups have been reached in recent times, which could see some advance in manufacturing. With reference to the finance minister’s pointer to the private sector to boost manufacturing, it needs to be stated that there are various indigenous items which do not compare with imported ones, both in quality and pricing. The oft-repeated economic jargon of achieving economies of scale needs to be achieved.

Most analysts are of the opinion that India’s competitive power and global influence is fast slipping and has very little assertive power. In evolving our economic strategy, it is necessary to bring about changes in policy making along with technological innovations as well as economic efficiency for India’s emergence as a key player in the global arena. What the government plans to do remains to be seen but in this critical scenario, India has to face the challenges with determination.

As regards Indian diplomacy, it needs to be said that the country has rightly maintained contacts with Iran and our leaders have openly stated that the country would purchase oil and gas from whichever source offers the lowest price. India’s relation with China has greatly improved and this needs to be maintained for the country is dependent on the latter for vital imports in the electronics, pharma, auto and various other sectors. — INFA