The Assembly Trap: India's Manufacturing Success and Its Deepening China Dependence

1. The Assembly Trap: India's Manufacturing Success and Its Deepening China Dependence

Basic Concept

Since 2014, India has pursued industrial self-reliance through a series of flagship initiatives: 'Make in India' (2014), which sought to raise manufacturing's share of GDP; the Phased Manufacturing Programme (PMP), a graded tariff structure first used to localise mobile phone assembly; 'Atmanirbhar Bharat Abhiyan' (2020), announced as part of India's COVID-19 economic response; and the Production Linked Incentive (PLI) Scheme (2020), which offers financial incentives on incremental sales across 14 key sectors including electronics, telecom, pharmaceuticals, solar PV modules, and advanced chemistry cell (ACC) batteries. A crucial distinction in industrial policy is between 'assembly' (putting together an already-made component into a finished product) and genuine 'backward integration' (domestically manufacturing the precision components, raw materials, and capital goods that go into that product). A trade deficit occurs when a country's imports from a partner exceed its exports to that partner; when that deficit is concentrated in intermediate goods (components used in further production) rather than final consumer goods, it signals structural dependence rather than temporary demand.

Core Context

On 21 September 2026, The Hindu published an editorial titled 'The paradox of self-reliance: the assembly trap', arguing that India's manufacturing and export growth is structurally increasing, not reducing, dependence on Chinese components. According to the analysis, India-China bilateral trade reached $167.6 billion in 2025, but while Indian exports to China stayed broadly stagnant, Chinese imports into India surged 71%, from $87.5 billion to $149.5 billion. About 70% of these imports are intermediate goods and 22% are capital goods, meaning they feed directly into Indian factories rather than reaching Indian consumers directly. Independent data compiled by the Global Trade Research Initiative (GTRI), reported by Business Standard, corroborates this picture: China now supplies over 80% of India's imports across 71 electronics tariff lines in 2025-26, up sharply from just 44 such product lines in 2018-19, and India's overall goods trade deficit with China stood at roughly $112 billion in 2025-26, with electrical machinery alone contributing $43.1 billion (about 38%) of that gap.

Latest Developments

• Smartphone component imports from China rose from 3.3% to 10.1% of India's total import basket even as India became the world's second-largest mobile phone manufacturer — assembly volumes are rising, but so is import intensity.

• Lithium-ion battery imports have more than doubled since 2021-22 to $3.9 billion, with China supplying 83.6% of them, a concern for India's electric vehicle and renewable-energy storage ambitions.

• Semiconductor imports sourced from China fell somewhat to 48.9% of India's total semiconductor imports, down from 64% the previous year, suggesting partial diversification is possible with sustained policy push.

• The Hindu editorial attributes the trend to the absence of a deep domestic component ecosystem, Chinese cost advantages from state capital subsidies and scale, and PLI incentive design that rewards final output volume and export turnover rather than domestic value addition.

• Recommended course corrections include redesigning PLI schemes to reward domestic value addition and precision tooling, imposing phased and targeted tariffs on components with viable domestic alternatives, strengthening industry-academia research translation through the Anusandhan National Research Foundation (ANRF), and diversifying sourcing through 'China-plus-one' supply chain frameworks with trusted trade partners.

UPSC Prelims Pointers

• The Production Linked Incentive (PLI) Scheme was launched in 2020 and currently covers 14 sectors, including electronics, telecom, pharmaceuticals, solar PV modules, and ACC batteries.

• 'Atmanirbhar Bharat Abhiyan' was announced in May 2020 as part of India's economic response package to the COVID-19 pandemic.

• The Anusandhan National Research Foundation (ANRF), set up under the ANRF Act, 2023, is India's apex body for funding and coordinating research, replacing the earlier Science and Engineering Research Board (SERB) framework.

• The Phased Manufacturing Programme (PMP) is a graded import-tariff mechanism originally designed to localise mobile handset manufacturing in India.

• As per GTRI data, China supplies over 80% of India's imports across 71 electronics tariff lines in 2025-26, compared to 44 such lines in 2018-19.

• India's goods trade deficit with China has remained above $100 billion for several consecutive years, driven heavily by electrical machinery and electronics components.

• The term 'China-plus-one' describes a global corporate strategy of diversifying manufacturing and sourcing beyond China to a second base, such as Vietnam, Taiwan, or India itself.