Swadeshi as a Disciplined Strategy

Swadeshi as a Disciplined Strategy: Rhetoric vs. Risk Absorption

The Economic Survey 2025–26 makes a striking admission: Indian firms — unlike their counterparts in post-war America, Germany, Japan, or East Asia — exhibit a chronic reluctance to absorb long-term risks or prioritize national capability-building. This reluctance, in a global scenario marked by technology denials, export controls, and carbon border mechanisms, exposes India's industrial vulnerabilities. It is against this backdrop that "Swadeshi" has been framed not as a mere slogan, but as a strategic necessity.

However, the numbers tell a mixed story. The manufacturing sector contributes just 17% to India’s GDP—a modest rise from earlier levels but far from the ambitious target of 25% set under various national roadmaps. Nonetheless, certain sunrise sectors—including semiconductors, renewable energy components, and medical devices—offer promise, with notable growth seen in electronics (34.9%) and motor vehicles (33.5%). Still, the broader picture remains troubling: India’s private investment remains subdued, and capital expenditure, though improved at 4% of GDP, hasn’t transitioned into transformative industrial momentum.

The Institutional Mechanics and Their Constraints

Swadeshi, in today’s economic lexicon, is framed by policies such as the National Manufacturing Mission (NMM). Announced in the Union Budget 2025–26, the NMM aims for integrated governance with a unified roadmap combining policy frameworks and execution strategies. The government’s focus on sunrise sectors aligns with this vision, channeling interventions through tax incentives, industrial parks, and targeted subsidies.

This machinery, however, remains constrained by India’s historically low Research & Development (R&D) investment, which still hovers under 1% of GDP. Contrast this with South Korea’s 4.8% R&D investment: while India struggles with fragmented and low-tech manufacturing units, South Korea has built globally competitive capabilities in semiconductors and electronics. Similarly, a major bottleneck lies in infrastructure—high logistics costs and poor energy reliability handicap India’s competitive edge even as global benchmarks in manufacturing efficiency rise.

Swadeshi vs. Global Integration: A Necessary but Insufficient Framework

Despite rhetorical strength, the Swadeshi strategy runs two risks. First, it risks turning defensive, focusing on insulated production rather than leveraging global systems for scaling capabilities. Second, the policy’s execution so far indicates prioritization of publicity wins—such as INS Vikrant or Vande Bharat trains—over deeper reforms like workforce reskilling and digital infrastructure development. These flagship projects are laudable but fail to hide India’s dependence on imported semiconductors or electronics components—the lifeblood of modern manufacturing.

Additionally, the Economic Survey’s critique of Indian corporates cannot be ignored: reliance on regulatory arbitrage and protected margins over productivity is an institutional weakness. For instance, large firms have benefited from PLI (Production Linked Incentive) schemes while showing marginal improvements in export competitiveness relative to smaller nations like Vietnam, which offers cheaper production and hosts robust supply chain networks.

The Missing Dynamics: Private Investment and Risk Appetite

The gap between public capex (4% of GDP) and subdued private investment exposes an alarming dependence on government-led initiatives. Regulatory incentives like the recent sunrise sector schemes remain underused without private firms stepping up innovation investments. Even with improved rankings on the World Bank’s Ease of Doing Business index (63rd in 2020, up from 142nd in 2014), private enterprises have been slow to match scaling ambitions.

The irony here is that Indian firms remain over-reliant on global inputs even as Swadeshi is framed around economic sovereignty. Import dependence on semiconductors, batteries, and defence equipment raises questions about whether India can genuinely achieve resilience in the face of external shocks.

Lessons from South Korea: What India Can Build On

South Korea’s trajectory offers a telling counterpoint. In the 1970s, under the Park Chung-hee regime, South Korea implemented disciplined industrial policy interventions alongside rigorous R&D investments. Targeting heavy industries, semiconductors, and electronics, it emphasized export competitiveness without sacrificing long-term strategic goals. Today, South Korea is the global leader in memory chip production, holding over 63% of the market share.

India, while borrowing some elements of this model, struggles to replicate the institutional discipline South Korea displayed. The critical flaw lies in uneven execution—state-level inconsistencies in industrial policy dilute gains, while fragmented governance structures hinder unified efforts. Tamil Nadu alone accounts for 15% of manufacturing employment, followed by Gujarat and Maharashtra at 13% each, underscoring uneven achievements geographically.

Metrics for Future Wins

Success in Swadeshi must not be measured by isolated projects—the number of operational Vande Bharat trains or defence exports—but by sector-wide capabilities. Metrics like domestic value addition (especially in electronics and renewable energy), workforce reskilling levels, and R&D growth should form the bedrock of progress assessments. For instance, electronics value addition has jumped from 30% to 70%, with targets to hit 90% by FY27. But this ambition must extend beyond isolated sectors into broader industrial realms.

Finally, much depends on how far small and medium enterprises (SMEs) can be integrated into the Swadeshi model. Their role in labor-intensive industries like textiles remains critical, yet policy implementation disproportionately favors large corporates. Unless Swadeshi includes mechanisms to decentralize gains, it risks replicating systemic inequities rather than addressing them.

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