India’s manufacturing sector faces significant challenges, particularly in its reliance on Chinese supply chains, according to the Economic Survey 2024-25. The report outlines concerns over India's dependence on China for critical supplies, such as solar energy components and rare earth minerals, and stresses the need for strategic investments to boost domestic manufacturing capabilities and reduce vulnerabilities.
China accounts for 28.8 percent of global manufacturing output, while India’s share stands at just 2.8 percent, highlighting the stark gap in industrial capacity. The dominance of China in key sectors like electronics, renewable energy, and pharmaceuticals, compounded by its aggressive industrial policies, poses hurdles for India’s manufacturing ambitions.
The survey points out India’s heavy dependence on Chinese supply chains, particularly for solar energy components like polysilicon, wafers, and batteries. With 80 percent of global solar photovoltaic (PV) components and 70 percent of rare earth minerals used in high-storage batteries being processed by Chinese companies, India’s vulnerability to supply chain disruptions, price fluctuations, and currency risks has grown.
Global shifts in trade dynamics are also influencing India’s position. The US and EU have taken steps to reduce their dependence on Chinese imports, yet India has yet to fully capitalise on these changes. The report highlights trends like friend-shoring and nearshoring as potential opportunities for India but underscores that substantial investment is needed to replace the existing Chinese supply chains.
To counterbalance these risks, the government is expanding its Production-Linked Incentive (PLI) schemes to encourage domestic manufacturing, particularly in sectors where China holds a dominant position. India is focusing on achieving self-reliance in solar and electronics manufacturing. However, current production levels are still insufficient to meet domestic demand.
The Economic Survey also calls for strengthening India’s trade partnerships with countries outside China, particularly with Southeast Asia, Europe, and the US, to diversify supply sources and bolster India’s export competitiveness. The survey stresses that attracting both domestic and foreign investments is key to transforming India into a competitive and innovative economy, capable of navigating the challenges posed by global supply chain dependencies and geopolitical shifts.
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