India must link support for domestic manufacturing to export competitiveness and the ability to match import prices, Chief Economic Advisor V Anantha Nageswaran said on Thursday, calling for a shift in the country’s industrial strategy amid growing geopolitical tensions and supply chain uncertainties.
Speaking at the inaugural session of the ISID-IDRA Fourth National Conference, Nageswaran said India could no longer assume that global markets would provide essential goods as reliably as they did in the decades before the COVID-19 pandemic.
He stressed the need to strengthen domestic manufacturing capabilities and reduce dependence on critical imports that could become difficult to access during geopolitical conflicts.
“The 21st century will be marked by a geopolitical contest for real resources,” Nageswaran said, highlighting the growing importance of securing access to essential commodities and industrial inputs.
Import substitution must improve competitiveness
Nageswaran said India’s approach to import substitution must move beyond protection for domestic industries and place greater emphasis on measurable improvements in competitiveness.
He called on industries receiving government support to demonstrate export competitiveness or the ability to compete with imported products at comparable prices.
The accompanying presentation advocated time-bound support linked to industrial performance and exports, with protective measures withdrawn once domestic producers achieve competitiveness.
He cautioned that protection without investments in productivity and efficiency could undermine the long-term resilience of Indian manufacturing.
Manufacturing growth fails to lift its economic share
Despite strong economic growth, manufacturing has yet to register a significant increase in its share of India’s gross value added (GVA).
Nageswaran cited real GDP growth of 7.8% in the first quarter of FY2026-27, alongside manufacturing GVA growth of 9.2% and gross fixed capital formation growth of 11.9%.
However, manufacturing’s share of GVA remained almost unchanged at 14.8% in FY2025-26, compared with 14.7% in FY2022-23.
The presentation also highlighted the widening growth gap between core merchandise imports and exports. During April-September 2026, core merchandise imports rose 19.7% year-on-year, compared with 16.2% growth in core exports.
The figures underscore the challenge of translating manufacturing growth and investment into a stronger domestic production base and improved export performance.
Supply shocks demand a different policy response
Reflecting on disruptions over the past six years, Nageswaran cited semiconductor shortages, trade retaliation linked to tariffs and vulnerabilities arising from dependence on crude oil as examples of supply-side shocks.
He said conventional monetary and fiscal policy measures become less effective when economic difficulties stem from shortages of goods rather than weak demand.
“Monetary policy will be much more difficult to implement in a world of supply shocks,” he said, emphasising the need for policies that directly address production constraints.
Fiscal support, he suggested, would be more effective when directed towards expanding productive capacity and improving productivity rather than merely stimulating demand.
Building resilience and securing critical resources
Nageswaran also stressed the importance of maintaining adequate buffers of essential commodities and strengthening domestic manufacturing capabilities to withstand external disruptions.
A stronger industrial base, supported by productivity improvements and competitive pricing, would help India reduce vulnerabilities in critical supply chains while expanding its role as a supplier to international markets.
His remarks highlight a broader policy challenge for India: ensuring that industrial support delivers lasting gains in competitiveness, reduces excessive import dependence and enables domestic manufacturers to compete more effectively in global markets.