India's Manufacturing Rise: The Policy Logic Behind Declining Import Dependence and Lessons for Brazil

Structural Changes in India's Manufacturing Import Dependence Decline

According to the latest report by Bank of Baroda, India's manufacturing sector is experiencing a structural decline in import dependence. The report analyzed 1,372 non-financial companies and found that the ratio of imports to net sales dropped from 22.9% in FY2019 to 22.3% in FY2025. More importantly, key sectors such as electricals, chemicals, capital goods, and consumer durables saw a sharper contraction—electricals fell from 22.7% to 13.7%, and chemicals from 27.5% to 22.5%.

These figures are not coincidental but direct evidence of the effectiveness of India's domestic manufacturing policies, such as the "Make in India" initiative and India Semiconductor Mission 2.0. Notably, this shift occurred amidst ongoing global supply chain disruptions (especially the West Asia crisis), further demonstrating the value of policy interventions in enhancing industrial resilience.

Why Should Brazil Pay Attention to This Signal?

As Brazilian economic analysts, we should not focus solely on India. Both India and Brazil are large emerging economies facing challenges in transitioning from resource-export orientation to high-value-added manufacturing. India's success in reducing import dependence in sectors like electricals and chemicals can be attributed to three key factors:

1. Clear industrial policy focus: Through specific policies such as semiconductor programs and electronics manufacturing clusters, India provided tax incentives and infrastructure support, directly attracting investment and nurturing domestic supply chains. 2. Market size and domestic demand pull: India's vast domestic consumer market offered early orders for manufacturers, helping them cross the scale threshold and thereby reducing reliance on imported components. 3. Technology upgrades and skill training: Although not detailed in the report, initiatives like skill development programs accompanying "Make in India" provided human capital support for technology-intensive enterprises.

• For Brazil, the lesson from India's case is that reducing import dependence cannot rely solely on trade protection but requires systematic industrial policy. Brazil has a strong agricultural and mining base but remains highly dependent on imports in intermediate products like electronics and chemicals. Brazil can learn from India's experience, for example:
• Implementing special programs similar to the "Semiconductor Mission" in specific areas (e.g., fertilizers, petrochemicals, electronic components).
• Utilizing the regional market integration of Mercosur to expand the demand scale for domestic manufacturers.
• Strengthening vocational education and R&D investment to bridge the technology gap.

Industrial Impact and Investment Implications for Brazil

The rise of India's manufacturing sector presents both challenges and opportunities for Brazil.

Challenge: India's enhanced competitiveness in chemicals and electricals may lead to competition with Brazil in global markets, especially in Africa and Latin America. Indian products could squeeze Brazil's export share due to lower costs and scale advantages.Opportunities: Brazil can become an investment destination for Indian manufacturing companies. Indian companies may seek to establish production bases in Brazil to enter the South American market and circumvent trade barriers. Brazil's abundant biomass, mineral, and renewable energy resources can support Indian companies in achieving green manufacturing.

• For investors, the decline in Indian manufacturing imports means:
• Profit margins and market shares of Indian domestic chemical and electrical companies are expected to rise, making related listed companies worth attention.
• In the long term, India's reduction of import dependence will change the global trade flows of chemicals and electronic products.
• Brazilian investors may consider increasing holdings in Brazilian companies with high integration into the Indian supply chain, such as those exporting raw materials like iron ore, lithium, and soybeans to India.

Structural Changes in Brazil's Economy Over the Next Five Years

If Brazil can learn from India's case, the following changes may occur in the next five years:

1. Manufacturing Policy Overhaul: The Brazilian federal government may launch an upgraded version similar to the "National Industrial Development Plan," focusing on supporting strategic import substitution areas such as electronics, pharmaceuticals, and chemicals. 2. Shift in Foreign Investment Type: From investments solely targeting the Brazilian domestic market to "export-oriented" investments that use Brazil as a regional manufacturing hub. 3. Supply Chain Restructuring: Brazilian companies may reduce reliance on Chinese intermediate goods and instead establish supply relationships with India or localize supply chains. 4. Green Industrial Advantage: Brazil's hydropower, wind power, and biofuel resources can provide a low-carbon competitive advantage for energy-intensive manufacturing (such as chemicals and aluminum smelting), which India may not be able to match.

Conclusion

The decline in India's manufacturing import dependence is superficially a few percentage points change, but behind it is the result of the synergistic effect of industrial policy, market, and technological innovation. Brazil should learn from this: reducing import dependence is not an overnight task, but requires policy consistency over a decade or more, public-private cooperation, and agile response to changes in the global supply chain. Brazil's agricultural and energy advantages can serve as a springboard for manufacturing upgrading, but it needs to set clear goals and incentive mechanisms like India.

For readers concerned about Brazil's economy, India's case provides a rare "controlled experiment": facing the same global supply chain pressures, industrial policy can indeed change national competitiveness. Whether Brazil can seize the next five years depends on whether policymakers can quickly distill from India's model a plan suitable for their own country.