India must build, not just trade

Source: The post “India must build, not just trade” has been created based on “India must build, not just trade” published in “The Tribune” on 15th September 2026.

UPSC Syllabus: GS Paper 3 – Indian Economy

Context: India’s economic engagement with China has witnessed a major transformation. While China used foreign investment and trade as instruments for industrialisation and technological development, India increasingly used them for services and market development. This experience highlights the need for India to focus on building domestic industrial capabilities rather than merely expanding trade.

India-China Economic Relationship

1. India-China trade has changed significantly since 1991. India’s exports to China were less than $1 billion in 1990-91, but bilateral trade had reached around $76 billion by 2011-12.
2. The nature of trade has remained different for both countries. China increasingly supplied capital goods and industrial inputs to India, while India mainly exported primary products such as ores and cotton.
3. China developed a much larger manufacturing base than India. Since 1991, China’s manufacturing sector became about eight times larger, while its high-value product sector became around 50 times larger.
4. China used foreign direct investment as an instrument of industrialisation. Foreign investment helped China develop manufacturing, acquire technology and progressively build its own technological capabilities.
5. India used foreign direct investment differently. India largely used FDI as an instrument of services and market development rather than as an instrument for building manufacturing capabilities.

Lessons India Can Learn from China

1. India needs a stronger industrial policy. The experience of China suggests that economic growth should be accompanied by deliberate efforts to develop domestic industrial capabilities.
2. India should build technological capabilities. Instead of remaining dependent on imported technology and industrial inputs, India needs to develop enterprises capable of controlling their own technological development.
3. Trade policy should support industrial development. Trade policy should not merely focus on opening markets but should also contribute to building domestic manufacturing and technological capabilities.
4. India needs to learn from China’s use of FDI. China integrated FDI into its manufacturing sector, whereas India’s FDI has been more strongly integrated into services and market development.
5. India should focus on high-value manufacturing. The expansion of high-value products and manufacturing capabilities is necessary for India to become a strong economic power.

Challenges

1. India has developed significant dependence on imported industrial inputs. This dependence can weaken domestic manufacturing capabilities and make industrial development more difficult.
2. Past economic policies did not adequately build industrial capabilities. The article argues that the industrial policy followed after the 1991 reforms did not produce the desired industrial transformation.
3. India’s economic policy has often been influenced by free-market thinking. The article argues that economic policies under successive governments were influenced by economists associated with US capitalist ideology.
4. India faces stronger competition from China. China has developed much greater manufacturing and technological capabilities, making it difficult for India to compete merely through trade.
5. India needs to create sufficient employment opportunities. Economic growth must translate into better jobs, incomes and social security for citizens rather than being measured only through GDP growth.

Way Forward

1. India should align its trade policy with industrial policy. Trade policy should directly contribute to the development of domestic manufacturing and technological capabilities.
2. India should use FDI strategically for industrialisation. Foreign investment should help create manufacturing capabilities, transfer technology and develop domestic enterprises.
3. India should encourage enterprises to control their own technology. Building indigenous technological capabilities will help Indian firms become competitive and reduce excessive dependence on foreign technology.
4. India should develop high-value manufacturing sectors. Greater emphasis should be placed on sectors that can generate technological capabilities, employment and economic power.
5. India should pursue a long-term industrial strategy. The objective of becoming a developed economy by 2047 requires sustained efforts to build competitive industries and technological capabilities.
6. Economic growth should remain connected with citizens’ welfare. India’s economic strategy should focus not only on GDP growth but also on creating jobs, improving incomes and strengthening social security.

Conclusion: China’s experience demonstrates that trade and foreign investment can become powerful instruments of industrialisation when they are integrated with a clear industrial strategy. India therefore needs to move from an approach focused primarily on trade, services and markets towards one that builds manufacturing capacity, technological capabilities and globally competitive Indian enterprises. This will be essential for India to achieve sustainable economic strength and its development goals by 2047.

Question: India’s experience with China shows that trade alone cannot ensure economic transformation. Discuss the need for India to focus on industrial capacity and technological development along with trade.

Source: The Tribune