Amid growing geopolitical risks, PM Modi asks ministries to identify imports that can be replaced by local goods | Today’s news

Indian Prime Minister Narendra Modi is taking steps to cut key imports into the economy to protect supply chains and ease pressure on the currency as geopolitical risks escalate.

Modi’s office has ordered key ministries to identify categories of goods with a high dependence on imports that can be replaced by locally produced products, according to officials familiar with the matter. The government is considering subsidies and other incentives to help boost domestic production, they said, asking not to be identified because the discussions are private.

The Ministry of Trade and Industry is preparing a list of more than 100 products, including electronics, chemicals, key drugs, fertilizers, semiconductors, automobiles and machinery, that could be expanded, the people said. Negotiations are ongoing across several ministries and a decision has not yet been finalized, officials said.

The latest move to boost domestic manufacturing came on Wednesday, when Modi’s cabinet approved a plan to increase financial support for chip and smartphone production by an additional 1.9 trillion rupees ($19.7 billion). It also approved a policy to increase local fertilizer production following shortages related to the closure of the Strait of Hormuz.

Indian manufacturing is heavily dependent on imported inputs, particularly from China, making the industry vulnerable if supplies are constrained, as India’s auto and technology industries have experienced over the past year. The Iran war has only further exposed India’s dependence, with severe energy shortages and soaring import bills in recent months pushing the currency to record lows.

“Export controls are used to deny critical components – from rare earths to semiconductors – to countries that need them. If this is the world we have to live in, where industrial policies are weaponized, self-sufficiency is needed,” said Gaurav Kapur, economist at IndusInd Bank.

India imported goods worth nearly $775 billion in the financial year ending in March, with nearly a fifth of that coming from China alone.

Building domestic capacity is now a key pillar of Modi’s economic agenda to reduce the trade deficit, preserve foreign exchange and position India as an alternative manufacturing hub to China. India’s free trade agreements with partners such as the European Union are expected to attract new investment and deepen the country’s manufacturing base, economists said.

“Such self-reliance is born out of necessity, not necessarily a search for economic efficiency,” said Dhiraj Nim, an economist at ANZ Banking Group. “Bringing up a cottage industry will undoubtedly have a positive impact on manufacturing metrics and jobs. But a lot depends on the scale,” he said.

Shaktikanta Das, a former central bank governor and now principal secretary in Modi’s office, is heading a task force preparing an import substitution plan for the economy, officials familiar with the matter said. Members of the Prime Minister’s Economic Advisory Board are also involved in the project.

Modi has tasked key government ministries to identify areas where India can produce goods more efficiently and at lower costs, officials said. The government may consider extending manufacturing incentives to private and foreign investors to set up factories in the country or ask state-owned firms to increase their own capacity through joint ventures, they said.

Modi’s office and the Ministry of Commerce and Industry did not respond to a request for more information.

Commerce Minister Piyush Goyal this month urged states and industry to identify products that can be manufactured competitively in the country. He added that these efforts will help reduce dependence on imports, save foreign exchange while strengthening the domestic supply chain to reduce vulnerabilities arising from over-reliance on foreign suppliers.

India is the world’s third-largest oil importer, with most of its purchases coming from the Middle East and Russia, making the country vulnerable to geopolitical tensions. The US is proposing new sanctions against the top five buyers of Russian oil and gas – including India and China – that would give President Donald Trump the power to impose tariffs of up to 100% on those countries.

Officials in New Delhi said that while imports of crude oil, gold and critical minerals are difficult to replace, the government sees room to reduce dependence on other items, including pulses and edible oils, through agricultural reforms.

In sectors where import substitution is not immediately feasible, the government plans to pursue a long-term strategy of building domestic production, the people said. In some areas, such as key intermediates needed for electric vehicles, China is critical in the global supply chain and cannot be replaced.

Among other proposals on the table are options to ease export duties for exporters if they use more locally made capital goods for their exports, one of the people said.

Officials are also considering changes to the advance authorization program, which allows exporters to import raw materials duty-free, provided they export a specified value of finished products within a specified time frame and add at least 15% of value domestically. The discussions are mainly about whether value-added norms can be eased if exporters increase their use of locally made intermediates, the person said.

As for fertilizers, the government is targeting a 30% reduction in imports over the next three years, a person familiar with the matter said. As part of the effort, authorities plan to revive dormant domestic fertilizer factories, with some projects expected to be completed within the next year, the person said.