LinkedIn article | Critical-thinking scenario model
The hook
What if India’s import burden is not just a problem—but one of India’s biggest manufacturing opportunities?
India imported US$721.2 billion of merchandise in FY2024-25, while merchandise exports stood at about US$437.7 billion, leaving a merchandise trade deficit of roughly US$283.5 billion.
But we need to ask a more intelligent question:
How much of these imports can India realistically replace through domestic manufacturing—and how much can the resulting manufacturing ecosystem add to exports?
The challenge: every import is not a bad import
The answer is not 100% replacement. India imports crude oil because of resource constraints. India imports gold because domestic jewellery manufacturing does not eliminate the need for gold. India imports advanced machinery because some of that machinery actually increases India’s productive capacity and future exports. India imports semiconductors and advanced components because developing the entire upstream ecosystem requires technology, capital and time.
Therefore, ‘Make everything in India’ is not the right strategy.
The better objective is: reduce avoidable imports, increase domestic value addition and build industries that can eventually export.
Where is the real opportunity?
| Opportunity | Potential domestic substitution | Why? |
| Pulses & selected agricultural products | 40–60% | India already has the agricultural base. |
| Edible / vegetable oils | 40–55% | Productivity and processing opportunity. |
| Toys, footwear, consumer goods & finished plastics | 50–80% | Existing manufacturing capability and lower technology barriers. |
| Electronics & components | 25–50% | Large opportunity, but imported inputs remain important. |
| Telecom equipment | 40–60% | Domestic engineering capability, but high-end components remain constrained. |
| Computer hardware | 30–50% | Assembly is easier than deep component localisation. |
| Specialty chemicals | 20–40% | Technology, feedstock and scale constraints. |
| Selected capital goods | 20–40% | Build domestic capability selectively; productive imports can be beneficial. |
The interesting point is that some of the best opportunities are not necessarily India’s largest import categories. There are hundreds of smaller products where India could potentially achieve 50–90% domestic value addition.
Three scenarios
Using the FY2024-25 merchandise import base of US$721.2 billion, I have modelled three scenarios for non-petroleum import substitution.
| Scenario | Gross import substitution | Approx. share of imports |
| Conservative | US$42 bn | 5.9% |
| Base / realistic | US$63 bn | 8.7% |
| Strong transformation | US$88 bn | 12.2% |
But there is an important correction. If India manufactures something domestically, it may still import raw materials, components, technology and machinery. Therefore, US$63 billion of gross import substitution does not mean US$63 billion of net foreign-exchange saving.
In the base scenario, the estimated net foreign-exchange retention is approximately US$42 billion.
Then comes the second opportunity: exports
If India manufactures only for its domestic market, imports fall but exports do not necessarily change. If these new industries become globally competitive, India gets both import substitution and export growth.
Suppose the new manufacturing ecosystem increases merchandise exports by approximately 7%. On the FY2024-25 export base, that represents roughly US$30.6 billion of additional exports.
Again, this is not treated as a free benefit. The model allows approximately 30% of incremental export value for imported inputs, so the trade benefit is not overstated.
And then we have the EV opportunity
This is a separate lever. India’s petrol and diesel consumption is enormous. If EV adoption reaches 25%, the impact should not be modelled as a simple 25% reduction in oil imports.
Vehicle mix, kilometres travelled, two-wheelers versus cars, buses and trucks, charging availability and petroleum’s non-road uses all matter. India also exports refined petroleum products, while batteries and EV components can themselves create imports.
Base EV assumption: 25% EV adoption → approximately 20% displacement of petrol + diesel demand.
Under this model, that could translate into approximately US$14.9 billion of annual crude-import-value saving.
This is separate from the manufacturing saving. And EV adoption should ideally be accompanied by domestic battery, motor, power-electronics and charging-equipment manufacturing so that the oil saving is not partly replaced by a new EV import bill.
Put the three levers together
| Contribution | Impact | Comment |
| Manufacturing import saving | US$64.9 bn | Base non-petroleum manufacturing scenario |
| EV petroleum-import saving | US$14.9 bn | 25% EV adoption / base fuel-displacement scenario |
| TOTAL DIRECT IMPORT SAVING | US$79.8 bn | Manufacturing + EV |
| Additional merchandise exports | US$30.6 bn | Approx. 7% export increase |
| Imported inputs for additional exports | ~US$9.2 bn | 30% analytical allowance |
| Indicative trade-deficit improvement | ~US$110 bn | Combined scenario |
| Indicator | FY2024-25 OLD | Central scenario / NEW |
| Merchandise imports | US$721.2 bn | Approximately US$641.4 bn |
| Merchandise exports | US$437.7 bn | Approximately US$468.3 bn |
| Merchandise trade deficit | US$283.5 bn | Approximately US$173.1 bn |
Central scenario: approximately US$110 billion improvement in the merchandise trade deficit, or roughly 39% of the FY2024-25 deficit.
But here is the most important point
India should not stop at assembly.
Take electronics. If India assembles a ₹100 product but imports ₹70 worth of components, the foreign-exchange benefit is limited.
The real opportunity is: Assembly → Components → Materials → Technology → Scale → Exports.
The same principle applies to EVs: EVs → batteries → cells → power electronics → motors → components.
And to chemicals: chemicals → intermediates → specialty chemicals → global exports.
Where India should NOT spend maximum effort
- Crude oil — a resource constraint. EVs, energy efficiency and alternative energy matter more.
- Gold — domestic jewellery manufacturing does not remove the underlying gold import.
- Advanced semiconductors — a long-term strategic opportunity, but not a quick import-substitution solution.
- Advanced machinery — productive capital-goods imports can strengthen domestic output and exports; blanket substitution can reduce competitiveness.
Top 5 focus areas
- Domestic value addition — measure how much of the product’s value is actually created in India.
- Import substitution where resources already exist — oilseeds, pulses, food processing, footwear, toys, consumer goods and selected plastics.
- Electronics & components — move beyond assembly into components and materials.
- Export-oriented manufacturing — every major import-substitution programme should ask: ‘Can we eventually export this product?’
- EV + domestic component ecosystem — combine lower petroleum demand with Indian battery, motor, electronics and charging capability.
The real question for India
India does not need to become an import-free economy. That would be neither practical nor economically desirable.
India needs to become a high-domestic-value-add economy.
If India can simultaneously reduce avoidable imports, increase domestic manufacturing, increase exports, reach 25% EV adoption over time and build the domestic EV/electronics supply chain, the merchandise trade deficit could potentially fall dramatically.
The central scenario suggests a possible ~US$110 billion improvement.
But the real prize is much bigger than that number. It is the creation of Indian capability—jobs, technology, suppliers, investment, productivity, exports and recurring foreign-exchange earnings.
So perhaps the question India should ask is no longer: ‘How much can we stop importing?’
‘How much value can India create from every dollar it currently imports—and how much of that value can we ultimately sell to the world?’
Data & methodology note
FY2024-25 merchandise trade figures are from Government of India Department of Commerce/DGCI&S data. The Department reports merchandise imports of US$721.20 billion, exports of US$437.70 billion and a merchandise trade deficit of US$283.50 billion.
The substitution percentages, export-growth assumption, imported-input allowance and EV savings are analytical scenario assumptions, not Government forecasts. The model should be upgraded to HS-code-level BOM/input-output analysis before being used as a formal policy estimate.
Primary references: Government of India, Department of Commerce Annual Report 2025-26; Department of Commerce TradeStat; PPAC petroleum data; Government of India agriculture and chemicals data.