The IMF’s World Economic Outlook projects India to become the world’s third-largest economy within the next few years, a milestone celebrated as evidence of its emergence as a major global power.
Yet beneath the optimism lies an uncomfortable reality. Despite its growing economic scale, India remains heavily dependent on external sources for many of the products, technologies and systems powering its development.
This contradiction begs a strategic question. Can India truly become a developed and resilient power, while remaining structurally dependent on the outside world for so many critical sectors?
Actual Vulnerabilities
Energy is India’s single biggest structural exposure as it imports 85% of its requirement of crude oil and 50% of natural gas. Another emerging risk is India’s rising imports of critical minerals & rare earths. There is heavy reliance on China for processing and supply chains, which affects the competitiveness of EVs, renewables, electronics and defence systems.
Fertilizer is another vital import with a direct bearing on food security. Importing over 70% of potash, phosphates and other products from Russia, Saudi Arabia, China and Morocco, this vulnerability can easily induce food inflation and farmer distress during supply shocks.
Much of India’s advanced industrial machinery is sourced externally. Even sectors where India has achieved impressive scale, such as pharmaceuticals, renewable energy and electronics assembly, continue to depend on imported intermediates, components or manufacturing equipment. India imports over 40% of its API requirements, of which China supplies about 70-80%.
India is also not blessed with geo-strategic leverage unlike Iran, Indonesia, Malaysia or Oman that are located along critical maritime choke-points or dominate vital supply chains.
In moments of disruption, like the ongoing Gulf crisis, this combination of import dependence and limited resource depth creates understandable anxiety about India’s long-term resilience.
So just how fragile is the Indian economy ?
Is the vulnerability overstated ?
India is sourcing bulk of its energy supplies from diversified suppliers from Russia, Middle East, US, Africa etc. Unlike Europe’s past dependence on Russia, India is not locked into a single supplier.
One can also argue that India has substantial forex reserves (can cover 10 months of imports) that provides shock absorption capacity, which many developing economies lack. India maintains good working relationships across blocs: the US, Gulf states, Russia, and parts of the Global South, which reduces the probability of a coordinated supply denial. India’s Production-linked Incentives (PLI), semiconductor push, and renewable expansion are steps towards lessening dependence.
The ongoing Gulf crisis has, in fact, demonstrated India’s flexibility rather than fragility, in managing energy flows without too much economic pain or at least till now.
Yet the issue requires perspective. Dependence alone does not determine national strength. Many advanced economies are deeply dependent on imports in critical sectors. Europe imports much of its energy and raw materials. Japan is resource-poor and depends heavily on external energy and export markets. What distinguishes resilient powers is not the absence of dependence, but the ability to manage it through industrial depth, technological capability and diversified supply chains.
And this is where India’s core challenge really lies.
And the Real Vulnerability
Perhaps the most consequential vulnerability for India is its lack of industrial and technological depth. The inability so far to undertake high-value manufacturing, absorb technology, build supply-chain resilience or scale domestic capabilities has created a systemic dependence for India.
For much of its modern economic history, India has occupied an uncomfortable position in the global pecking order. It is neither a natural resource power like Russia or a technological power house like the USA, or a manufacturing giant like China, nor a highly industrialized economy like Germany, Japan or South Korea.
Instead, India has developed along a distinct trajectory, where it has excelled in services, uneven in manufacturing, and still in the process of creating industrial depth. It has become an indispensable back-end participant in the global economy, but largely at the lower-value layers of global production and technology systems.
Indian engineers and technology professionals help power companies like Google and Microsoft. Yet India has struggled to build companies and manufacturing ecosystems of comparable technological depth, global reach and platform dominance.
This pattern of progression has defined India’s participation in successive technological and economic revolutions since the last century. It lagged during the industrial era, because it industrialized too late. It could not become a central player in the electronics manufacturing boom that powered economies like South Korea, China and Japan, because it failed to develop large-scale industrial and manufacturing clusters and eco-systems. India participated in each of these revolutions, but never shaped any of them.
India may not shape the AI revolution at the frontier level in the way the US or China might, but the AI era could still prove different for India. It already has the advantage of the presence of a highly developed digital infrastructure and a large software talent pool. Right now, it has rapidly adopted AI in services integration. A gradual creation of domestic AI infrastructure and ecosystems is also happening.
This distinction matters because those countries that dominate technological revolutions typically control core intellectual property, high-value manufacturing or critical infrastructure layers. For example, Taiwan does not have vast natural resources, but its dominance over advanced semiconductor fabrication makes it a key and indispensable player. Similarly, the US, China and to an extent, South Korea lead in innovation and through control of platforms and ecosystems.
Can India address the “Core Deficit”
The core deficit is not a single weakness, but a stack of mutually reinforcing capability gaps, from capital goods and precision engineering to industrial ecosystems, and technological ownership
The challenge before India is not becoming just a larger economy, but a more technologically capable, industrially mature and structurally resilient one. It will have to enhance its ability to manufacture precision and high-end industrial machinery that can produce other machines.
It needs deeper manufacturing ecosystems with a network of suppliers, toolmakers, logistics systems, research centers, etc., rather than isolated and disjointed industries.
It needs to reduce critical import dependence selectively in sectors where it creates national vulnerability, such as APIs, electronics components, telecom systems, battery materials and semiconductor packaging. India must dramatically raise industrial productivity.
Some progress has been made in recent years. Under ‘Make in India’ and PLI, India is partially creating a mobile phone components cluster. It is also beginning to create semiconductor-oriented clusters in Gujarat, Tamil Nadu and Karnataka. But it has a long way to go in developing dense,vertically integrated manufacturing ecosystems seen in China, South Korea or Taiwan.
AI is already shaping individual lives and economies. It may cover up India’s structural weaknesses by optimizing manufacturing efficiency, logistics management, quality control, supply-chain coordination, delivery of public services etc. But AI cannot increase India’s manufacturing depth.
India does not need complete self-reliance. No major economy today is entirely self-sufficient. A more realistic objective is strategic resilience by reducing excessive dependence in critical sectors while building domestic technological and industrial capability.
If India succeeds, it could emerge not merely as a larger economy, but as a genuinely advanced industrial and technological power.
If it does not, India will still continue to grow and modernize, but without fully overcoming its structural constraints or its vulnerabilities.
