Navigating the ‘Make in India’ Paradox: How Can the Government Address Dependence on Chinese Imports?

The “Make in India” initiative, launched with much fanfare in September 2014 by Prime Minister Narendra Modi, was envisioned as a cornerstone of India’s journey towards economic self-reliance. However, as the scheme evolves, it reveals a paradox: India’s drive for self-sufficiency is increasingly tethered to China, the very country it seeks to reduce dependence on. This reliance on Chinese machinery, expertise, and raw materials has created a conundrum for the Modi government, particularly as it faces ongoing diplomatic tensions with Beijing over protracted border disputes.

PLI Scheme’s Dependency on China

Central to the “Make in India” initiative is the Production-Linked Incentive (PLI) scheme, which aims to boost domestic manufacturing in key sectors such as electronics, automobiles, and steel. The government allocated ₹1.97 lakh crore for this scheme, with the goal of enhancing local production capacities and reducing import dependencies. However, the success of this scheme appears increasingly reliant on Chinese resources, including skilled manpower and critical machinery.

Despite attempts to curb imports from China through tariff hikes and stringent quality control measures, the Indian industry continues to lean heavily on Chinese inputs. For instance, steel companies in India have only invested 60% of the promised ₹21,000 crore under the PLI scheme, citing difficulties in procuring essential machinery from China and obtaining visas for Chinese experts. This scenario is echoed across other sectors, where Chinese technicians and technology are deemed crucial for meeting the ambitious targets set under the PLI framework.

The Role of China in India’s Manufacturing Landscape

China remains India’s largest source of imports, accounting for approximately 15% of all inbound shipments in the April-June quarter of FY24. Sectors such as electronics, telecom, and heavy machinery, all critical under the PLI scheme, are particularly dependent on Chinese imports. The Global Trade Research Initiative (GTRI) reports that over the last 15 years, China’s share in India’s industrial product imports has surged from 21% to 30%.

This growing reliance on Chinese imports, particularly in sectors like solar photovoltaics and heavy equipment machinery, poses a strategic challenge. The PLI scheme for solar PV modules, for example, is heavily dependent on Chinese solar modules and technicians. Despite efforts to promote domestic manufacturing, the immediate success of these initiatives still hinges on China’s expertise and production capabilities.

Balancing Economic and Strategic Interests

The Indian government’s dilemma lies in balancing its strategic interests with the economic realities of its manufacturing sector. On one hand, there is a clear need to reduce dependency on China to safeguard India’s long-term economic security and autonomy. On the other, the immediate success of key initiatives like the PLI scheme seems unachievable without Chinese support.

While the government has taken steps to fast-track visas for Chinese technicians and ease import restrictions for critical machinery, these measures have sparked debates on the long-term implications of such dependency. Critics argue that increased reliance on Chinese inputs could undermine India’s strategic autonomy, particularly in light of the ongoing geopolitical tensions with Beijing.

A Path Forward: What Can the Government Do?

To address this complex situation, the Indian government could consider the following approaches:

Strengthening Domestic Capabilities:

Accelerate investments in domestic R&D and manufacturing infrastructure to reduce reliance on Chinese technology and machinery over time. This could involve targeted incentives for sectors like heavy machinery and electronics, where China’s dominance is most pronounced.

Strategic Partnerships and Diversification:

Engage in strategic partnerships with countries other than China to diversify the supply chain. India could explore collaborations with nations like Japan, South Korea, and Taiwan, which have advanced manufacturing capabilities.

Incentivizing Domestic Innovation:

Introduce additional incentives under the PLI scheme for companies that prioritize domestic sourcing of materials and technology. This could include tax breaks, subsidies, or increased financial support for R&D.

Long-Term Vision and Planning:

Develop a long-term strategy that balances immediate economic needs with strategic goals. This might involve a phased reduction in Chinese imports, coupled with a focus on building self-reliance in critical sectors.

Enhancing Workforce Skills:

Invest in upskilling the domestic workforce to reduce the need for foreign experts. This could be achieved through partnerships between industry and educational institutions, focusing on areas where India currently relies on Chinese expertise.

Conclusion

The “Make in India” initiative, while ambitious, faces significant hurdles due to its reliance on Chinese inputs. The Modi government is now tasked with finding a delicate balance between achieving short-term manufacturing goals and ensuring long-term economic security. By strengthening domestic capabilities, diversifying supply chains, and incentivizing local innovation, India can navigate these challenges and move closer to its vision of a self-reliant economy. The path forward will require careful planning and strategic decision-making, but the potential rewards—both economically and geopolitically—are immense.