PM Modi pushes to cut imports to shield India from shocks
The Union government is preparing a broad import-substitution drive, directing key ministries to identify categories of goods with high import dependence that could be replaced by domestic production.
The Ministry of Commerce and Industry is compiling a list of more than 100 product categories — spanning electronics, chemicals, key drugs/APIs, fertilisers, semiconductors, automobiles, and machinery — for scaled-up domestic manufacturing.
The government is considering subsidies and other incentives, including extending manufacturing support to private and foreign investors, or encouraging state-owned firms to expand capacity through joint ventures.
Related decisions already taken include additional financial support of about Rs 1.9 lakh crore for chip and smartphone manufacturing, and a policy to raise domestic fertiliser production, targeting a 30% reduction in fertiliser imports over three years.
The push follows heightened supply-chain and currency pressure linked to recent geopolitical disruptions, including the effects of the Strait of Hormuz closure on energy and input costs.
Import Substitution Industrialisation (ISI) as a Policy Strategy
Import substitution is an economic strategy where a country deliberately replaces imported goods with domestically produced ones, typically using tariffs, subsidies, and production incentives to protect and grow local industry. India followed an ISI-heavy strategy from the 1950s to 1991 (the "License Raj" era) before shifting toward export-oriented liberalisation after the 1991 Balance of Payments crisis; the current push is a targeted, sector-specific revival of this logic rather than a return to blanket protectionism, framed instead around supply-chain resilience and strategic autonomy.
Key Details
- Post-1991 reforms replaced broad ISI with trade liberalisation, but sector-specific import substitution has resurfaced through schemes like Production Linked Incentive (PLI, 2020) and the Atmanirbhar Bharat Abhiyan (2020).
- The current drive is distinguished from classical ISI by its narrower focus: identifying specific high-import-dependence product categories (100+ items) rather than protecting industry broadly through tariff walls.
- Sectors flagged include semiconductors, smartphones/electronics, chemicals, pharmaceutical APIs (active pharmaceutical ingredients), fertilisers, automobiles, and machinery — many of which India currently sources heavily from China and other single-source geographies.
The 100+ product list represents a modern, targeted version of import substitution — using fiscal incentives and joint ventures rather than tariff protection alone — aimed at reducing exposure to supply-chain shocks rather than pursuing self-sufficiency across the whole economy.
Production Linked Incentive (PLI) Scheme and Manufacturing Incentives
The Production Linked Incentive Scheme, launched in 2020, is India's principal instrument for output-linked industrial incentives — companies receive a percentage-based incentive on incremental sales of goods manufactured in India, rather than a one-time capital subsidy. It currently spans 14 strategic sectors including electronics, telecom equipment, pharmaceuticals, solar modules, automobiles/auto components, and specialty steel, and is the fiscal backbone the government is expected to draw on (and extend) for the new import-substitution list.
Key Details
- PLI (2020) covers 14 sectors with a combined outlay of approximately Rs 1.97 lakh crore.
- Recent additions to India's electronics/chip incentive stack include Semicon 2.0 (approved July 15, 2026, Rs 1.27 lakh crore) and the Mobile Phone Manufacturing Scheme (Rs 62,500 crore), together the "Rs 1.9 lakh crore" chip-and-smartphone push referenced in the current drive.
- The government has separately approved measures to raise domestic fertiliser production, targeting a 30% cut in fertiliser imports over three years, following supply disruption linked to the Strait of Hormuz closure.
The broader import-substitution list is expected to extend PLI-style, output-linked incentive design to additional product categories beyond the 14 sectors currently covered, using the same fiscal-support logic already deployed for semiconductors and fertilisers.
Balance of Payments and Strategic Autonomy Rationale
A country's Balance of Payments (BoP) records all economic transactions with the rest of the world; a widening trade deficit (driven by high import dependence) puts downward pressure on the currency and depletes foreign exchange reserves. Reducing import dependence in critical sectors is therefore both an economic-resilience measure (protecting the currency and reserves) and a strategic-autonomy measure (reducing vulnerability to supply disruptions from geopolitically sensitive regions or single-source suppliers).
Key Details
- The drive follows currency pressure and rising import bills linked to recent West Asia tensions, including disruption around the Strait of Hormuz affecting energy imports.
- The government is exploring joint ventures with companies from Taiwan, South Korea, Germany, and Italy to build domestic manufacturing capability without full import dependence on any single country.
- Reducing import dependence on China specifically has been a recurring theme in India's industrial policy since border tensions began in 2020, evident in PLI, ISM/Semicon, and now this broader product-list exercise.
The 100+ product identification exercise is framed explicitly as a resilience measure against supply-chain and currency shocks, linking it to BoP management and India's broader strategic-autonomy objectives in trade policy.
- Products under review for import substitution: more than 100 categories, spanning electronics, chemicals, drugs, fertilisers, semiconductors, automobiles, and machinery.
- Additional chip and smartphone manufacturing support already approved: approximately Rs 1.9 lakh crore (Semicon 2.0 at Rs 1.27 lakh crore plus Mobile Phone Manufacturing Scheme at Rs 62,500 crore).
- Fertiliser import-reduction target: 30% cut over three years.
- PLI Scheme (2020) baseline: 14 sectors, approximately Rs 1.97 lakh crore combined outlay.
- Nodal body compiling the product list: Ministry of Commerce and Industry.