India’s $51 Billion Import Substitution Plan
- Posted: 04 Sep 2026, 4:38 PM IST
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India imported goods worth $775 billion in FY26.
Nearly a fifth of that came from China.
For years, this dependence was largely seen through the lens of trade.
But recent global disruptions, including tariffs, export restrictions and supply-chain curbs, have made it a larger manufacturing and economic issue.
India is now trying to address that dependence by producing more critical goods and components domestically.
The government has identified nearly 100 products representing around $51 billion of imports for a focused import-substitution push.
This sits within a much larger pool of nearly $398 billion in imports considered potentially replaceable through domestic production.
The idea is simple: identify products India imports heavily, build local capacity and gradually reduce dependence on overseas suppliers.
The focus spans several sectors.
Six working groups are examining areas including pharmaceuticals, medical devices, chemicals, capital goods, automobiles, electric vehicles, energy, construction equipment, defence, aerospace and electronics.
The products being examined are largely those that India either does not manufacture domestically or produces in quantities too small to meet demand.
India is also looking beyond simply replacing finished imports.
Joint ventures with countries such as Taiwan, South Korea, Germany and Italy could help bring manufacturing capabilities, technology and supply chains into the country.
The need for this becomes clearer when we look at India’s trade with China.
China has remained India’s largest import source for at least the past five years.
Imports from China increased from $76.3 billion in FY18 to $101.7 billion in FY24. They then climbed to $113.4 billion in FY25 and $131.6 billion in FY26.
Electronics alone accounted for $46.36 billion of imports from China in FY26, while machinery contributed another $29.45 billion.
And machinery imports continue to rise. In Q1 FY27, they reached $16.68 billion compared with $14.09 billion a year earlier.
This is why electronics, machinery and other critical manufacturing categories have become central to India’s localisation strategy.
One major example already shows what localisation can achieve.
Mobile phone imports have fallen by around 77% since FY21, while more than 99% of domestic mobile phone demand is now met locally.
Production-linked incentive schemes have played a role in this broader manufacturing push.
Across PLI schemes, cumulative investment has crossed ₹2.16 lakh crore, while production and sales have exceeded ₹20.41 lakh crore. These schemes have also been linked to more than 14.39 lakh jobs.
The mobile phone story shows that import substitution can work when policy support is matched by manufacturing investment and scale.
India is now trying to extend that model to more complex areas such as semiconductors, electronic components, pharmaceuticals, solar manufacturing and advanced industrial products.
Significant policy support is already being directed towards these sectors.
The original PLI programme across 14 sectors carries an outlay of ₹1.97 lakh crore.
Semicon 2.0 has an outlay of ₹1.27 lakh crore, while the mobile phone manufacturing scheme carries ₹62,500 crore. The electronics components scheme has another ₹40,000 crore, alongside more than ₹40,000 crore directed towards critical bulk drugs and pharmaceutical inputs.
Together, these programmes are attempting to build domestic capacity at different points of the manufacturing chain rather than focusing only on finished products.
That could create opportunities across electronics manufacturing, solar equipment, speciality chemicals, auto components, batteries, EVs and defence electronics.
Companies already building or expanding manufacturing capacity in these areas could benefit if localisation increases, although the opportunity will depend on how competitive domestic production becomes.
And that is also where the biggest challenge lies.
Import substitution does not automatically make a product cheaper or globally competitive.
Past manufacturing schemes have delivered strong results in some areas, but not uniformly across sectors.
India will also remain dependent on imports for categories such as crude oil and certain critical minerals.
Technology is another constraint.
India spends around 0.64% of GDP on R&D compared with China’s 2.41%, highlighting the gap that needs to be closed if domestic manufacturers are to compete in more advanced industries.
For investors, the opportunity lies in the companies that can turn this localisation push into actual business growth.
Policy support, global supply-chain diversification, a growing component ecosystem and pressure from tariffs and export restrictions are all making localisation more important.
But fewer imports will ultimately depend on India’s ability to make more products competitively at home.
The bigger opportunity, therefore, is not simply replacing goods that India currently buys from abroad.
It is building domestic supply chains strong enough to compete globally.
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