Core Argument

• India’s post-1991 growth strategy prioritised trade liberalisation and services but did not build manufacturing capabilities at a comparable scale.
• The article argues that trade expansion alone cannot make India economically or geopolitically self-reliant; industrial capability must become the foundation of trade policy.
• India–China trade illustrates this imbalance: India increasingly imported capital goods and industrial inputs from China while exporting primary commodities and other lower-value products.
• China simultaneously expanded its manufacturing base and technological capabilities, creating a widening industrial asymmetry between the two countries.

India–China Divergence

• Since 1991, China followed a strategy that combined market reforms with active industrial development, whereas India relied more heavily on liberalisation and market-led allocation.
• China’s manufacturing sector became vastly larger than India’s, enabling it to dominate global production of machinery, electronics, automobiles and other high-value products.
• India’s dependence on Chinese industrial inputs, particularly in sectors such as telecom, power equipment and electronics, has therefore acquired both economic and national-security implications.
• India faces a strategic vulnerability when it depends on China for critical industrial inputs while relying on the US and other countries for technology access and export markets.

FDI and Trade: Different Uses

• In 2000, FDI inflows were around $41 billion in China compared with $4 billion in India.
• Even in 2024, China attracted about $116 billion in FDI compared with around $28 billion for India.
• The key difference is therefore not merely the volume of FDI but what productive capabilities the investment creates.

Limitations of India’s Post-1991 Approach

• India rapidly integrated into the global trade regime, including GATS in 1995 and the Information Technology Agreement (ITA) in 1996.
• Zero or low tariffs on several IT products benefited India’s emerging software industry by providing access to affordable hardware, but also weakened incentives for some domestic hardware producers.
• Liberalisation increased GDP growth but did not automatically generate sufficient manufacturing depth, technological ownership or high-quality employment.
• Policy has often favoured importers, traders and services over building domestic industrial enterprises and technological capabilities.
• The central policy gap is therefore the absence of a sufficiently strong, long-term industrial strategy linking trade, FDI, technology and domestic production.

Way Forward: Build Industrial Capability

• India needs an industrial policy that directs trade policy rather than treating trade liberalisation as an end in itself.
• FDI should be increasingly channelled towards manufacturing, technology development, domestic supply chains and export-oriented production.
• Build indigenous capabilities in strategic sectors such as electronics, machinery, telecommunications, energy equipment and advanced manufacturing.
• Link imports and global integration with technology transfer, domestic value addition, skill development and R&D where appropriate.
• Strengthen Indian enterprises so that they can design, manufacture, innovate and own technologies rather than remaining dependent on imported components and foreign intellectual property.
• Policy success should be measured not only through GDP and trade volumes but also through productivity, wages, quality employment, technological capability and economic security.
• India’s goal of becoming a developed economy by 2047 requires a shift from simply “trading more” to “building more” — productive enterprises, technologies, industrial ecosystems and better jobs for its citizens.