India's Strategy for Import Substitution through Localisation

Through localization, India’s strategy for import substitution and notably under the ‘Atmanirbhar Bharat’ initiative, self-reliant India has evolved to a greater extent. India adopted the import substitution industrialization model with an aim to promote self-sufficiency & reduce the reliance on foreign goods. This strategy comprises high tariffs, nationalization of important industries that include coal, steel & heavy machinery and import controls. The small-scale industries were promoted for generating employment heavily & address regional disparities while industrial licensing was prevalent. But by the late 1980s, the inefficiency, lack of competitiveness, inefficiencies as well as technological stagnation of import substitution industrialization model became evident and this prompted India to shift towards privatization, globalization and liberalization in the year 1991. These reforms reduced trade barriers as well as deregulated industries and attracted FDIs integrating the country into the global economy & encouraging the growth of the private sector.

The multifaceted approach of Aatmanirbhar Bharat initiative aims to decrease the dependency on foreign goods, build economic resilience & boost domestic manufacturing. Some of the key components of this strategy comprises sector-specific initiatives, skilling programs, policy reforms, infrastructure developments. In this article let us look at the aspects to understand how the country is driving import substitution via localization. 

Policy reforms & Incentives

The policy reforms & incentives include the Production Linked Incentive Scheme, Startup & Make in India initiatives and Ease of doing business reforms. Firstly, the cornerstone of India’s localization is the PLI scheme as it provides financial incentives to organizations on the basis of their incremental sales, with an aim of boosting their domestic manufacturing in several industries which include automotive, electronics, textiles as well as pharmaceuticals. And this scheme helps in enhancing production capabilities, encouraging large-scale investments, and decreasing import dependency.

India has implemented numerous reforms for simplifying regulations, reducing bureaucratic obstacles as well as enhancing the overall business environment. These efforts have resulted in significant enhancements in the country’s ranking in the World Bank’s ease of doing business index. In turn, this has made it more attractive for both domestic as well as foreign investors to set up manufacturing units in India.

The startup and make in India initiatives aim to foster innovation, promote domestic manufacturing, support startups across diverse industries. The government encourages the development of indigenous technologies & products by rendering financial support, mentorship to startups & incubation.

India’s market capitalization can grow from $4.8 trillion now to $50 trillion in the next 20 years, National Stock Exchange (NSE) CEO Ashish Chauhan has predicted. If India must reach a market cap of $50 trillion in next 20 years, it will come on the back of tech-driven startups that will lead wealth creation, he said while he was speaking at ANMI’s 13^th International Convention 2024 in New Delhi in the month of February this year.

Sector specific strategies

Sector specific strategies are promoted in various industries which include Electronics & IT, Automotive & Electric vehicles, and Pharmaceuticals. India has introduced several policies for developing a robust electronics manufacturing ecosystem and the focus of these policies is to decrease the import dependency on the components & promoting the domestic manufacturing of semiconductors, smartphones, as well as various electronic goods. Moreover, the establishment of EMCs render the necessary incentives as well as infrastructure to the electronics manufacturers.

Coming to the pharmaceuticals sector, the government is working on boosting the manufacturing of Active Pharmaceutical Ingredients & decrease the reliance on imports. To achieve this the government has taken some initiatives which include financial incentives, establishment of API parks for enhancing domestic capacities & ensure drug security and infrastructure support.

"The (Indian) companies (planning) manufacturing GLP-1 drugs have applied for the government's production-linked incentive (PLI) scheme," Arunish Chawla, Secretary of Department of Pharmaceuticals.

Policies for promoting Electric Vehicle manufacturing, including battering manufacturing as well as charging infrastructure, aim to reduce oil imports & foster sustainable transportation. The FAME schemes render subsidies as well as incentives for promoting the adoption & production of Electric Vehicles.

“We are looking at the EV [electric vehicle] technology for India. Maybe after five years, as the hydrogen infrastructure grows in the country, we will probably have hydrogen-fuel-operated equipment also introduced in India,” says Deepak Garg, Managing Director, Sany India and South Asia and Vice President, Sany Group, Sany Group India and South Asia.

Infrastructure Development and Skilling & HRD

A key component of the country’s localization strategy is the development of industrial corridors and manufacturing clusters. These corridors render connectivity, logistics support to industries, state-of-the-art infrastructure, connectivity to industries which help in facilitating efficient manufacturing & distribution. Initiatives for developing smart cities with modern infrastructure buttress industrial growth & build new economic opportunities. Enhanced urban infrastructure, digital connectivity as well as transportation networks contribute to a conducive environment for manufacturing & business activities.

The Skill India program aims at enhancing the skills of the workforce and this helps in improving the availability of skilled labor for numerous industries. The government is creating a skilled workforce that can meet the modern industries’ demands through apprenticeships, skill development programs & vocational training. Furthermore, investments in education, R&D are highly important for fostering technology development, innovation as well as knowledge creation. Also strengthening higher education institutions will help in promoting collaboration between academia & industry and supporting research initiatives that help in building a strong foundation for indigenous innovation & manufacturing.

“The overall talent and the ecosystem around us also develop so that we are able to take more challenging assignments in future and we can take up more challenging technology to localize in India,” says Garg.

“The biggest benefit is the progress of the country.” “And when the country progresses, we all progress,” he adds.

India’s strategy for import substitution through localization is both a dynamic & evolving process and the future prospects of these are based on numerous factors which include technology & innovation, sustainability, global integration & policy continuity and adaptability.  Leveraging advanced technologies such as AI/ML as well as Industry 4.0 for improving productivity & innovation is crucial. Also, investing in Research & Development as well as fostering a culture of innovation will drive long-term growth. Lastly, India can achieve a self-reliant economy that is robust through continuous evolution & adaptation. And this is well-integrated with international markets making sure of sustainable growth & development.