When US President Trump announced that a 50% tariff would be imposed on most goods exported from India to the United States, it sent shockwaves through India. The situation worsened when he raised tariffs to 100% on branded drugs and further targeted heavy trucks and furniture. The shock felt across India intensified, and it soon became clear that Indian exports to the United States would decline significantly. Many Indians began wondering how the country would be able to tackle this challenge.
The immediate consensus in India was that the country should avoid excessive dependence on exports and instead strengthen the consumption of domestically produced goods. While boosting export earnings is vital for sustaining economic growth, there is now a growing recognition in India that building a large domestic consumption base is equally important—if not more so.
Prime Minister Modi responded to this tariff assault by urging Indians to prioritise the purchase of domestic goods and substitute imports wherever possible. His reasoning is that increased domestic consumption can help compensate for any drop in exports to the United States. In principle, his view appears both appropriate and timely. Indians, by and large, seem to have understood the logic behind his call and are likely to respond positively where feasible. However, the question remains: to what extent is this realistically achievable?
Strengthening India’s vast consumption base requires not only demand but also the ability to meet it through robust domestic supply chains. The critical issue lies in the fact that India does not yet have adequate supply growth to match the rapid increase in domestic demand for goods and services.
Over the past eleven years since Mr Modi assumed office as Prime Minister, the Indian economy has shown steady growth and has emerged as the fourth-largest economy in the world, with the ambition of becoming the third-largest in the near future. India now boasts the world’s fastest-growing major economy, with real GDP growth at 6.5% and nominal GDP rising from ₹106.57 lakh crore in 2014–15 to ₹331.03 lakh crore in 2024–25. The size of the economy has grown from US$2 trillion in 2014 to US$4.3 trillion today. This performance is the result of structural reforms, large-scale investment in infrastructure, and prudent monetary policies.
Yet, even with this progress, domestic supply has not kept pace with rising demand. A closer look reveals that India’s economic growth has been driven primarily by the services sector, especially the software industry, and by the reasonably strong performance of agriculture. Together, these sectors, supported by proactive government policies, have propelled growth. The information technology industry now contributes 7.5% of GDP and is projected to reach 10% by 2025. Agriculture accounts for roughly 17–18%. In contrast, the manufacturing sector—vital for economic expansion, job creation, and global competitiveness—contributes only around 17% to GDP. Despite government efforts, it has not grown to match India’s potential.
The consequences of this imbalance are clear. Domestic demand is increasing across multiple sectors, yet manufacturing is not expanding fast enough to meet it. As a result, India has become increasingly dependent on imports, reaching what many consider an alarming level. Around 50% of the country’s requirement for Active Pharmaceutical Ingredients (APIs) is imported, even though India is a global leader in pharmaceutical formulations. In renewable energy, India has achieved an impressive 192 GW of installed capacity from solar and wind power, but many of the necessary components for such projects are imported. In electronics, semiconductors, and the automotive industry, rare earth magnets and chips continue to come from abroad. India imports over 250 million tonnes of crude oil annually, meeting more than 80% of its requirement through imports. Several chemicals, including methanol and polyvinyl chloride, are imported in millions of tonnes every year. Such dependence makes the economy highly vulnerable.
Recognising this, the Prime Minister has emphasised the importance of Swadeshi—that goods manufactured in India should also be made from materials produced within the country. He has stressed that what can be made in India must be made in India, and has declared Atmanirbhar Bharat (self-reliance) a necessity, not an option. He has appealed to entrepreneurs and project promoters to design business models that advance self-reliance while maintaining global standards of quality and competitiveness.
The critical question, however, is why India’s manufacturing sector continues to underperform. The country has abundant resources: vast land, diverse soils and climates, mineral wealth, a long coastline, and a huge demographic advantage with one of the world’s largest youth populations. There is no shortage of financial resources either. Investors have shown enthusiasm, and corporate India holds significant cash reserves. The Chairman of the State Bank of India recently noted that Indian corporates have approximately ₹13.5 trillion in cash, making it possible to finance large-scale investments internally.
The real constraint lies in technology. India remains unable to implement many large or even medium-scale projects without relying on overseas technology. In several industries, domestic production expands only to the extent that foreign technology providers are willing to share know-how—often at exorbitant costs and under restrictive conditions. Successive governments, including the current one, cannot be blamed for this situation, as they have consistently encouraged research and development. Schemes such as the Production Linked Incentive (PLI) have been introduced to strengthen domestic capabilities, yet the gap remains wide.
The state of research and development (R&D) in India highlights the issue. A national survey by the Ministry of Science and Technology, covering around 8,000 R&D institutions, shows that private sector participation in research is minimal. Nearly 75% of R&D funding in India comes from government sources, whereas in developed countries it is largely driven by the private sector. Despite significant government spending, research outcomes from public institutions have been underwhelming, with only a few notable exceptions such as ISRO’s space achievements, DRDO’s defence innovations, and advancements in nuclear energy.
To address this gap, there is an urgent need to inject dynamism and accountability into India’s research ecosystem. Converting government-owned R&D institutions into joint-sector ventures with private participation, both domestic and international, could provide fresh impetus. The private sector is capable of investing substantial funds, provided it commits to achieving results with a balance of profit and innovation.
Universities also have a crucial role to play, yet many choose research topics without considering market relevance, leading to limited impact. Greater focus on aligning academic research with industry needs is essential. Lessons can be drawn from China, which successfully encouraged multinational companies to establish R&D bases in partnership with domestic firms, significantly expanding its technological capacity and global competitiveness.
Ultimately, Prime Minister Modi’s call for Indians to prioritise domestic goods is both pragmatic and necessary. However, for this call to be sustainable, India must overcome its technological constraints and strengthen its manufacturing sector. Reducing dependence on foreign technology and imports will be critical to ensuring that the domestic market is robust, resilient, and capable of supporting long-term growth.
The primary need of the day is clear: India must build a strong, self-reliant technological and manufacturing base, so that its future is not shaped by external pressures but by its own capabilities and determination.
