Trade and geopolitics

"Make in India" relies on "Made in China"

Akhil Ramesh

Ramesh Made In India Relies On Made In China

Published 13 May 2025

The overlap between trade and national security has become more acute over the last decade, leading to a resurgence in industrial policies globally. In India, New Delhi is increasingly realizing that a pivot towards manufacturing requires increased economic linkages with nations that have mastered it. While the country negotiates closer trade ties with the US, it is simultaneously nurturing a robust and growing economic relationship with China.

In 2014, Modi launched the "Make in India" initiative with the ambitious aim to transform India into a global manufacturing hub. The government envisioned that targeted industrial policies, along with streamlined regulations and reduced red tape, would create a conducive environment for investment. New Delhi set the goal of raising manufacturing’s share in India’s GDP from 15% in 2014 to 25% by 2025. In his second term, Modi’s administration identified 14 key sectors and introduced sector-specific industrial policies known as the Production Linked Incentive scheme (PLI). PLI had a two-pronged, zealous agenda: increase the share of manufacturing in India’s GDP, and reduce reliance on China in key sectors.

Fast forward to a decade later, while the value of electronics exports has increased, neither the share of manufacturing in India’s GDP has increased nor has India wholly reduced its dependence on China in key sectors. The dependence on China has only shifted from downstream goods to upstream goods. In fact, as of 2025, manufacturing’s share of India’s GDP has dropped to under 14% — lower than in 2014 when the Make in India initiative was formally announced.

With an outlay of 1.9 trillion Indian rupees (US$26 billion), the PLI scheme produced mixed results. In semiconductors and defense, manufacturing plants have sprung up in Gujarat in the west of India and Assam in the east through partnerships with American and Taiwanese companies. The telecommunications sector has achieved a 60% import substitution in critical components. In less than two years from 2023, imports of PV cells and modules from China dropped to 56% for PV cells and 66% for modules from more than 90% as a share of India’s PV imports. Unimaginable a decade ago, Apple is now producing 20% of its iPhones in India – one of the most talked-about success stories out of the Atmanirbhar Bharat Abhiyaan, or Self-Reliant India campaign.

At the same time, India’s imports of active pharmaceutical ingredients (API) from China dropped only marginally from 75% to 72% of total API imports. In electric vehicle (EV) battery manufacturing, the progress of import substitution has been slow, and the required technologies are still mostly licensed from Chinese companies. Sectors such as specialty steel, textiles, and auto parts and components also failed to achieve manufacturing targets set by the government.

Most of the success stories outlined above have one thing in common – they are successes in the downstream of a value chain. India’s reliance on inputs from China has not been reduced. It has taken a different form.

Take smartphones as an example. Apple’s supply chain in China is a comprehensive collaboration between universities, research institutions, and industry. From circuit boards to displays, Apple has built up an entire value chain in China with the help of the Chinese government over the course of two decades. Apple has managed to recreate only a small part of this complex value chain in India, where it is largely limited to the downstream component. Furthermore, while India fostered software development training for its youth over the course of the last two decades, it has not cultivated a workforce ready for manufacturing, including assembly of components. This has created a dependency on Chinese expertise.

The PLI scheme is up for possible termination as its intended goals have not been met. But New Delhi has decided to continue its industrial policy with one drastic change — it is opening itself up even more to Chinese investment. In late March 2025, New Delhi accelerated talks with global players in the electronics supply chain, primarily Chinese suppliers, to establish joint ventures (JVs) and strategic partnerships. Dixon, one of India’s contract manufacturing successes, already sealed a JV with China’s HKC Co. LTD to produce semiconductor display modules.

Concerns over Beijing’s belligerence in the Indo-Pacific catalyzed expanded cooperation between Washington and New Delhi, especially after deadly clashes in the China-India border in 2017 and 2020, respectively. Keeping true to its strategy of multi-alignment, however, India is back to engaging its northern neighbor. Starting in October 2024, the signs became evident. Both India and China have issued more visas for travel between the two countries and revived discussions on large foreign investments such as BYD’s proposal to set up a manufacturing plant in Telangana. Indian conglomerate Reliance has signed a long-term licensing deal to let SHEIN circumvent New Delhi’s prohibition, selling goods from SHEIN’s platform using an independent mobile app.

Debate over engagement with China continues in India. But as the global trade architecture undergoes an overhaul with Trump’s policies, strategic integration with other economies will become vital for both Beijing and New Delhi.

As a laggard in critical technology advancements, New Delhi runs the risk of turning its foreign policy strategy of multi-alignment, into a "multi-dependent" one: dependent on China for upstream goods; dependent on the US for advanced technologies; and dependent on sanctioned nations such as Russia for energy and defense. This could be the price it has to pay for failing to address the domestic challenges hindering businesses. Until India fixes its challenges at home — government inefficiency and supply-side reform — indigenization is a pipe dream.

In the short term, it would serve New Delhi well to draw on increased economic linkages with both the US and China without adopting a zero-sum approach to the conflict between the two. This could mean providing an alternative to Chinese supply for the US while simultaneously encouraging Chinese foreign direct investment in Indian sectors that are not directly connected to national security. Modi has lamented that India missed the bus in the first three industrial revolutions and promised to be in the driver’s seat in the fourth. To that end, Indian ideological agnosticism driven by core economic interests could finally lead Indian trade and economic policy to success.

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