Elephant in the room in meetings with Xi, Putin: India’s manufacturing challenges

Why in the News

India’s manufacturing base, and not its diplomacy, is the binding constraint on the economic agenda of this weekend’s BRICS summit in New Delhi. The Prime Minister meets the Russian President ahead of the summit and the Chinese President over the weekend, and the consequential part of both conversations is bilateral and economic. India’s difficulty in each case is not the size of its trade deficit. It is the narrowness of what India is able to sell.

What does the trade profile with Russia reveal about what India can sell?

1. Exports are a fraction of imports: India’s exports to Russia remain below $5 billion against imports of $63.8 billion in the year to March 2025.
2. The gap and its composition: The deficit is nearly $59 billion, and Russian oil and other natural resources dominate what India buys.
3. The market is not the limitation: Russia is a substantial market for manufactured goods, so the shortfall lies on the supply side.
4. Industrial promotion is under way: The first India Russia international industrial trade fair was held in Delhi this week, and both leaders are to visit it.

What does China’s export record to Russia show about the size of the gap?

1. The scale of the comparison: China exported about $103 billion of goods to Russia in 2025.
2. The composition is the real point: Those exports run from cars and machinery to electronics and industrial equipment, which are exactly the categories India cannot supply at comparable scale.

How does the same weakness appear in the trade with China?

1. A larger deficit on a larger base: Bilateral trade reached about $151 billion in the year to March 2026, and India’s deficit rose to roughly $112 billion.
2. The asymmetry is reversed: China sells manufactured goods, and increasingly the intermediate and capital goods that Indian manufacturers themselves need.
3. The policy response so far: Delhi is responding to Beijing’s demand that India end its restrictions on commerce with China.

Why does the goal of economic security collide with what Indian industry needs?

1. Chinese inputs are embedded in Indian production: They run through electronics, machinery, chemicals, auto components and pharmaceutical inputs, and they feed India’s own exports of manufactured goods.
2. The two objectives pull apart: The political aim of cutting dependence runs against the commercial need for cheap and increasingly sophisticated inputs at scale.
3. One weakness, two symptoms: Limited manufacturing strength shows up as an inability to export to a large market in one relationship, and as import dependence in the other.

Can diplomacy compensate for weak manufacturing?

1. What negotiation can actually deliver: Payment mechanisms, investment targets and trade agreements are all negotiable, and political warmth cannot substitute for competitive products.
2. The older ambition against the present agenda: India’s call to democratise the global economic order dates to the Cold War years. The immediate bilateral ask is that Russia and China buy more, invest more and help build Indian productive capacity.
3. What closing the gap requires: Sustained economic reform, simpler regulation, greater competitiveness, less corruption, deeper domestic supply chains and a stronger manufacturing ecosystem.
4. Investment follows attractiveness, not persuasion: The world is not short of capital or technology, and India is not near the top of the destinations they go to.
5. Why the bilateral overshadows the multilateral: BRICS, like the Shanghai Cooperation Organisation (SCO), has become a venue for high level political engagement and bilateral problem solving.

Challenges to widening India’s manufacturing base

1. Firms stay small, and stay small for long: A size distribution dominated by tiny units leaves few producers able to take on a large export order. Eg. Most registered manufacturing units in India employ fewer than ten workers.
   The Fix: Make support conditional on growth in employment and turnover rather than on staying below a small unit threshold.
2. Duties on inputs tax the exporter: Tariffs on intermediate goods raise the cost of the components a finished goods exporter has to buy. Eg. Duties on electronic components have been cut in successive Budgets precisely because they raised assembly costs.
   The Fix: Move to a single low duty band on intermediate and capital goods, and reserve protection for finished goods alone.
3. Logistics cost eats the margin: Dependence on road freight and long dwell time at ports raise the delivered price of Indian goods. Eg. The National Logistics Policy of 2022 was framed around bringing logistics cost as a share of output closer to competitor levels.
   The Fix: Tie port and freight corridor funding to published turnaround and transit time targets.
4. Assembly has grown faster than component making: Incentives have drawn in final assembly without a domestic base in parts, so import content stays high. Eg. Mobile phone exports have risen sharply, with display panels and battery cells still largely imported.
   The Fix: Condition incentive payouts on a rising schedule of domestic value addition rather than on output value alone.

Conclusion

The agenda for this week is bilateral, and the constraint on it is domestic. Persuasion can open a market, and it cannot supply the goods that would fill one. What India’s economic diplomacy is worth therefore turns on decisions taken by its own economic policymakers rather than on commitments extracted from partners. The test worth watching is whether the industrial reform agenda moves at all once the summit season ends.

Matching Previous Year Question

“[2025, GS3, 15 marks] Discuss the rationale of the Production Linked Incentive (PLI) scheme. What are its achievements? In what way can the functioning and outcomes of the scheme be improved?”