India’s Resilience Problem Is What It Cannot Yet Produce

India is becoming better at handling economic shocks. But the ability to handle a disruption is not the same as being prepared for one.

The country can find new markets for its exports, attract investment and keep its economy growing. Yet these strengths do not remove its dependence on foreign suppliers for many of the inputs its industries need. India may be able to find another buyer when one market becomes difficult.

But when the question shifts from Where can India sell? to What can India produce when global supply chains become unreliable?, the answer becomes much less clear.

This is the deeper resilience problem.

Finding another market is easier than building another supply chain

The first response to an outside shock is usually to find other markets. If one country becomes an unreliable buyer, find another. If tariffs make one market too expensive, send exports somewhere else. This makes sense because depending on one buyer creates an immediate risk.

But finding other markets solves only one part of the problem. If an Indian manufacturer depends on a foreign supplier for an important component, changing the destination of India’s exports does nothing to remove that dependence. India may be able to sell its finished products to five countries while still relying on one country for the machinery, component, chemical or mineral needed to make them.

Today, economic power comes not only from finished products, but also from control over the supply chains that produce them. A country gains more power when it controls important stages of production: the machinery, materials, components, technology, processing facilities and systems that other countries cannot easily replace.

This is where India’s resilience problem goes beyond finding new markets. The question is not only whether India can keep selling during a disruption, but also whether it can continue producing when important inputs become difficult to obtain.

India can assemble more without controlling enough of the chain

India’s manufacturing story has an important contradiction. The country has spent many years trying to expand manufacturing, and there has been real progress in areas such as electronics. Yet manufacturing has not developed enough depth to remove its dependence on important imported inputs.

The problem is not simply that India imports too many finished goods. It is that India often imports the capability behind the finished good.

Consider pharmaceuticals. India has a large pharmaceutical industry, but a major part of its active pharmaceutical ingredient requirements comes from China. In FY 2024–25, the Indian government reported imports of approximately US$4.35 billion across 200 categories of active pharmaceutical ingredients, bulk drugs and drug intermediates, with China accounting for around 73.7 per cent of those imports, according to a Department of Pharmaceuticals parliamentary reply. These figures cover the listed import categories. They do not cover the entire pharmaceutical industry or show China’s share of all Indian pharmaceutical production.

The same problem can be seen in electronics. India is assembling mobile phones in much larger numbers, but important components still come from abroad. Computers and semiconductors also remain areas where India depends heavily on imports. A country can become a major producer of a finished product while still facing risks from a disruption much earlier in the supply chain.

Critical minerals and clean-energy technologies show the same difference between having resources, assembling products and controlling the ability to produce them. India has access to some mineral resources, but having a mineral underground is not the same as being able to mine it, process it and turn it into a useful material for industry. The Ministry of Mines’ National Critical Mineral Mission identifies the development of domestic supply chains and stronger supply security as important policy goals. This shows why having minerals alone is not enough.

The strategic value of a resource depends not only on having it, but also on being able to turn it into something industries can use.

China’s advantage is not simply that it makes cheap products

China’s importance in global manufacturing comes from the depth of its industrial system. It is involved in many stages of production, from processing raw materials to making components and finished products. This becomes important when a product that may seem unrelated to geopolitics suddenly becomes difficult to obtain.

Rare-earth magnets are a good example. When Chinese restrictions disrupted the supply of these magnets, carmakers outside China were affected because the processing and manufacturing capabilities needed to produce them were concentrated elsewhere.

India faces similar risks. Chinese supplies are important for many manufactured goods, chemicals used in production, active pharmaceutical ingredients, rare-earth materials, polysilicon, wafers, solar cells, components and other industrial inputs.

Replacing Chinese imports with imports from another country can reduce the risk of depending on one supplier. But it does not always change the deeper dependence on foreign industry. Having more suppliers reduces risk. Producing important inputs at home gives a country greater power. These two things are connected, but they are not the same.

This difference matters because a second supplier may provide another source without giving India control over the production process. Resilience becomes stronger when Indian companies can produce, process or replace the inputs they need.

The real test is the Four Cs

India’s strategic risks can be grouped into four areas: commerce, critical minerals, computer chips, and computer software and infrastructure for artificial intelligence. Together, they describe important foundations of economic power in the next stage of industrial competition.

Manufacturing decides whether India can produce goods on a large scale. Critical minerals decide whether it can secure the physical materials needed by modern industry. Semiconductors provide the computing hardware needed by advanced technologies. AI infrastructure and software decide how much value India can gain from the technologies built on that hardware.

India has important strengths in each of these areas, but it does not control enough of the key production stages. The contrast with countries that control specific parts of global production is revealing. Taiwan’s role in advanced chip production, the Netherlands’ specialised role in extreme ultraviolet lithography equipment, and China’s position in rare-earth processing, magnets, batteries and pharmaceutical ingredients show how power can come from controlling a small but essential capability.

A country does not need to manufacture everything. It needs to manufacture enough of the things that other countries cannot easily replace. This is a much more demanding way to define industrial resilience.

Chips show why scale alone is not enough

Semiconductors make this problem especially clear. India has a large and growing demand for chips because almost every modern industrial system depends on them. But demand alone does not create the ability to produce them.

According to NITI Aayog’s semiconductor research, around 90–95 per cent of India’s current semiconductor demand is met through imports. This figure refers to semiconductor demand. It should not be taken as a measure of dependence on every electronic component or as proof that India has no domestic semiconductor capabilities.

The gap between being a large consumer and becoming a major producer remains wide. Semiconductor production cannot be built simply by providing money to factories. A working industry needs equipment, materials, skilled workers, design capabilities, chip production, testing, packaging and reliable supply chains.

The same difference between having resources and being able to produce useful goods applies to critical minerals. Without enough knowledge of mineral resources, mining and processing capabilities, the strategic value of India’s resources remains limited. The question is whether India can turn its resources into industrial power.

AI creates an even harder version of the problem

Artificial intelligence reveals another layer of dependence. India has strong skills in software and in using technology, but being good at using technology is different from controlling the systems and supply chains that produce it.

AI increasingly depends on software, computer hardware, data, specialised infrastructure and advanced research. India’s technological strength therefore cannot be measured only by the number of engineers or software professionals it has. The more difficult question is: How much of the AI supply chain can India build and control?

The growth of Global Capability Centres is relevant here. India now has more than 1,600 GCCs employing around 1.66 million people. At the same time, greater uncertainty around overseas employment has increased attention on developing advanced capabilities within India. GCCs can connect Indian talent with advanced global business activities and create opportunities to develop more complex skills and capabilities.

But their growth cannot be explained only by changes in US visa policy. Nor does India’s rise in venture capital prove that immigration restrictions have automatically created a domestic deep-tech revolution. These developments may have several causes.

Talent alone does not create technological capability. It must be connected to laboratories, investment, companies, research institutions, manufacturing capacity and markets that can turn ideas into products. The opportunity is real, but the link between individual policy changes and wider technological progress is more complex.

This is why industrial policy is harder than it looks

India has responded with policies such as Production Linked Incentives, quality-control measures and semiconductor initiatives. These policies matter because markets will not always create every capability that is important for national security and economic strength.

But government support cannot replace a strong industrial system. The goal cannot simply be to attract a factory, increase the number of products assembled or reduce imports in one year. It is to create a system where knowledge, components, suppliers, skills and investment grow together around an industry.

This takes time and creates a difficult policy choice. India needs stronger domestic capabilities, but it cannot build them by cutting itself off from the global economy. Some Indian industries support continued access to Chinese inputs because those inputs remain important for their businesses.

The right response will depend on the product and its strategic importance. Sometimes importing is the best choice. Sometimes finding more suppliers is enough. And sometimes it is worth building domestic production even when it costs more at first. The difficult task is deciding which approach is right for each dependence.

The goal is not self-sufficiency

A resilient economy does not have to produce everything itself. Complete self-sufficiency would be extremely expensive and would reduce the benefits of international trade.

The goal is to reduce dependence where it can become a serious risk. Importing a consumer product is one thing. Importing the only available source of an important industrial input is another. Buying machinery from another country is not automatically a weakness. Being unable to operate without one foreign supplier of that machinery is.

This is why the difference between trade openness and strategic dependence matters. India can remain closely connected to the world economy while building domestic capabilities in areas where supply problems would have effects far beyond trade.

The idea of becoming a “product nation” is therefore more important than simply asking India to manufacture more. The deeper goal is to move from being mainly a consumer or assembler in global supply chains to controlling more valuable and important parts of those supply chains.

The next phase of resilience is about what happens before the factory

India’s economic resilience has often been discussed in terms of growth, foreign exchange reserves, domestic consumption or the ability to survive an outside shock. These things matter, but they answer a different question: how well India can handle a disruption.

The ability to produce important goods and materials decides how much disruption India needs to handle in the first place. Finding another market reduces dependence on one buyer. Finding another supplier reduces dependence on one source. Producing an important input at home can change the situation more deeply.

That is the change India is trying to make. The problem is that productive capability cannot be built during a crisis. Mines, processing facilities, semiconductor industries, specialised suppliers, research institutions and advanced industrial skills take years to develop.

Even then, domestic production does not mean complete independence. Some technologies will remain spread across many countries. Some inputs will still need to be imported, and some supply chains will continue to depend on international cooperation. That is not a failure. It is part of how a closely connected global economy works.

The real measure of resilience is not whether India can produce everything. It is whether, when the world becomes uncertain, India has enough productive strength to choose when to depend, whom to depend on, and what it must be able to produce itself.

That is a very different kind of economic power. India’s resilience problem is ultimately not what the country cannot sell. It is what, despite becoming a much larger economy, it still cannot yet produce, process or control when the world needs it most.