India’s ambitions in electric vehicles, critical minerals and semiconductors reflect a search for industrial strength and strategic autonomy. Yet the region’s experience raises a more difficult question: can countries that increasingly consume advanced technologies also capture the productive capabilities and economic value behind them

The New Industrial Paradox

India’s industrial ambitions are changing. Electric vehicles, batteries, solar equipment and semiconductors are no longer simply emerging commercial sectors; they are increasingly associated with economic security, technological competitiveness and geopolitical influence. Government incentives and large investment commitments reflect the belief that India must manufacture more of the technologies that will shape its future.

Yet an important paradox lies beneath this ambition. The expansion of India's new industries can increase its dependence on foreign suppliers, particularly China, before domestic capabilities become sufficiently developed. A factory may be located in India while its critical materials, machinery and components originate elsewhere. Domestic production can grow without an equivalent expansion in domestic technological control.

This is not unique to India. It reflects the organisation of contemporary manufacturing, in which production is divided across countries according to accumulated expertise, scale and cost advantages. 

China’s strength is not confined to the manufacture of finished goods. It extends to the processing of minerals, the production of specialised materials and the networks of suppliers that sustain industrial activity. These capabilities have taken years to develop and cannot be reproduced simply by announcing new factories.

The tension is therefore between the visible expansion of manufacturing and the less visible accumulation of productive capabilities. India’s experience, and that of its South Asian neighbours, offers a useful perspective on this distinction.

The EV Transition 

India’s electric vehicle market illustrates the problem. The expansion of domestic vehicle production creates opportunities for manufacturers, suppliers and workers. But the economics of an EV depend heavily on its battery, which requires processed minerals, specialised chemicals and advanced manufacturing technology.

The Government of India’s National Critical Mineral Mission, approved in January 2025, with the Mission period  upto 2030-3allocated ₹16,300 crore in proposed expenditure over seven years, with an anticipated ₹18,000 crore in investment from public-sector enterprises and other stakeholders. The mission recognises that mineral security involves exploration, mining, processing and recycling, rather than the acquisition of mineral assets alone.

The distinction is important because China has a substantial advantage in several critical mineral processing industries. India's Economic Survey 2024–25 cited estimates placing China's share at approximately 60 per cent of global lithium processing, 68 per cent of cobalt processing and 90 per cent of rare-earth processing. These shares concern processing, not ownership of all global reserves or mines.

The result is a complicated relationship. Indian manufacturers benefit from access to established international supply chains, including Chinese suppliers, while the government seeks to reduce vulnerabilities arising from that very dependence. Replacing imports prematurely could increase production costs; retaining the same dependence indefinitely could leave manufacturers exposed to supply disruptions and geopolitical tensions.

The challenge is not simply to produce EVs in India. It is to understand how much of the technology, materials and industrial knowledge associated with them can eventually be developed within the country.

The World of Semiconductors

Semiconductors present an even more demanding test. India's chip-design expertise offers a significant starting advantage, and the government's semiconductor programme has attracted substantial investment commitments. In April 2026, the government reported ten approved projects under the programme, with investment commitments of approximately ₹1.6 lakh crore. It also reported that two facilities had begun commercial production or shipments.

These are meaningful developments, but investment commitments, operational capacity and technological self-reliance are different measures of progress. Semiconductor manufacturing depends on specialised equipment, high-purity materials, reliable utilities and technically demanding processes. Chip design, fabrication, assembly, testing and packaging are related but distinct activities.

India can expand its role in this industry without immediately reproducing the entire global semiconductor ecosystem. Its engineering workforce offers opportunities in chip design, power electronics, embedded systems and industrial applications. However, the presence of a fabrication or packaging facility does not, by itself, establish control over the technologies and inputs on which it depends.

The semiconductor experience thus reveals a wider feature of industrial policy. The initial phase of development often involves importing technology and expertise. Whether this dependence diminishes over time depends on the extent to which domestic firms acquire knowledge, develop suppliers and move into more sophisticated activities. That outcome cannot be inferred from the size of investment announcements alone.

Other South Asian Countries

Pakistan offers a striking contrast. Rather than building a domestic manufacturing ecosystem first, the country has experienced a rapid expansion of solar power using imported equipment.

Reuters reported in June 2025, citing data from Ember, that solar generation accounted for 25.3 per cent of Pakistan’s utility electricity during the first four months of that year. Pakistan's solar-module imports from China had increased fivefold between 2022 and 2024.

The attraction is readily understandable. Faced with expensive electricity and pressure on household and business budgets, consumers have found imported solar panels an increasingly attractive alternative. The availability of relatively inexpensive Chinese equipment has accelerated the adoption of renewable energy.

This is a real economic benefit, even if the technology is imported. Lower electricity costs can improve the viability of businesses, while solar installations can reduce exposure to fuel-price volatility and unreliable power supplies. Pakistan's experience therefore cautions against treating import dependence as an unqualified economic failure.

But the distinction between adopting technology and producing it remains. The expansion of solar installations does not automatically create domestic capabilities in photovoltaic cells, inverters, batteries or associated machinery. The benefits to the local economy depend partly on how much value is generated through installation, maintenance, electrical equipment and other services.

Pakistan's experience and India's industrial strategy represent different routes into the green transition. One demonstrates the immediate benefits of access to affordable imported technology; the other seeks to combine market expansion with domestic manufacturing. Neither route, by itself, guarantees that a country will capture the full industrial value of the transition.

Different Countries, Different Economic Possibilities

South Asia is not a uniform industrial space. Its countries possess different resource endowments, production capabilities and access to markets.

Bhutan illustrates the potential contribution of energy resources. The World Bank approved financing in January 2026 for the 1,125 MW Dorjilung Hydroelectric Power Project. The project is expected to generate more than 4,500 GWh annually and increase Bhutan's energy production by 40 per cent. These are projected outcomes, not current electricity generation figures.

Hydropower can generate export earnings and contribute to regional energy security. Its wider industrial effects, however, depend on how electricity revenues and reliable power support economic diversification. An economy can be an important energy exporter without necessarily developing a broad manufacturing base.

Nepal faces a related opportunity through hydropower and cross-border electricity trade. Its economic prospects depend not only on generating electricity but also on transmission infrastructure, market access and the commercial arrangements governing exports. Energy can become a source of regional interdependence, although its contribution to industrial diversification is not automatic.

Sri Lanka offers a different example. Its established apparel industry generated approximately US$4.76 billion in textile and apparel exports in 2024, according to the Sri Lanka Export Development Board. This export base reflects accumulated manufacturing experience and connections to international buyers. It demonstrates that an economy need not enter the most technologically advanced industries immediately to participate in global production.

Bangladesh's garment industry presents a similar case. Its established export capabilities provide a foundation for industrial learning, even as the country faces the challenge of diversifying beyond a dominant export sector. The experience of both countries suggests that productive capabilities emerge through sustained participation in manufacturing, not simply through entry into sectors identified as strategically important elsewhere.

These examples reveal different stages of economic transformation. Pakistan has used imported solar technology to respond to immediate energy costs. Bhutan and Nepal can earn from renewable electricity. Bangladesh and Sri Lanka have established export-oriented manufacturing capabilities. India is attempting to develop a broader advanced manufacturing base. Their experiences cannot be reduced to a single model of industrial development.

The Regional Contradiction

There is, however, a common constraint. South Asia remains weakly integrated economically despite its geographical proximity and complementary capabilities. The World Bank has estimated that intra-regional trade accounts for around 5 per cent of South Asia's total trade, compared with approximately 25 per cent in ASEAN. It has estimated current regional trade at roughly US$23 billion, against potential trade of at least US$67 billion.

These figures are estimates of existing and potential trade, not a guarantee that the entire gap can be closed. Nevertheless, they indicate the limited scale of economic exchange within the region.

This matters for industrial development. Regional production networks require reliable access to components, electricity, transport and markets. Where trade barriers, political tensions and connectivity problems raise costs, firms have fewer incentives to build supply relationships across borders. Individual countries may consequently find themselves importing industrial inputs from distant suppliers while neighbouring economies possess complementary capabilities.

The contrast is especially relevant to energy. Bhutan and Nepal can supply hydropower, while India has a much larger industrial market and electricity system. Yet the economic benefits of these complementary positions depend on transmission infrastructure, commercial arrangements and cross-border cooperation. The existence of complementary resources does not itself produce an integrated regional economy.

China's role adds another dimension. It is a major supplier of industrial inputs to India and an important commercial partner for several South Asian economies. The region's dependence on Chinese products is therefore not simply a consequence of geopolitical alignment. It also reflects price, scale, established commercial relationships and the limited availability of alternative suppliers in particular industries.

Question of Indigenous Growth

The larger issue is whether the green and digital transitions will broaden the region's productive capabilities or mainly expand its consumption of advanced technologies.

India's manufacturing ambitions could generate domestic value through components, industrial machinery, materials, engineering and research. But the extent of that value cannot be judged solely by the number of factories established or the amount of investment announced. It depends on the domestic capabilities that emerge around those investments.

Similarly, Pakistan's solar expansion can produce substantial economic benefits even when equipment is imported, but its effect on industrial development depends on the wider activities that grow alongside installation. Bhutan's electricity exports can strengthen its economy, although diversification remains a separate challenge. Bangladesh and Sri Lanka possess manufacturing experience, but the future value of that experience depends on their ability to move into more productive activities.

There is no automatic progression from importing technology to mastering it. Nor is every imported component a sign of industrial weakness. Imports can lower costs, accelerate adoption and give domestic firms access to technologies they could not develop immediately. The decisive distinction is between dependence that supports learning and dependence that persists because domestic capabilities never become commercially competitive.

Challenges for the Region

For South Asia, this is the more useful way to understand strategic autonomy. It is not an attainable state in which every critical product is manufactured domestically. It is a gradual strengthening of the ability to participate in global production on more favourable terms.

The region's green and digital transition will ultimately be judged not simply by the number of EVs sold, solar panels installed or semiconductor projects announced. It will be judged by the extent to which these changes improve productivity, create productive employment, strengthen domestic enterprises and expand the capacity to earn from international trade.

The central uncertainty is whether South Asia will capture an increasing share of the value created by the new industrial economy, or remain primarily a market for technologies whose most valuable capabilities lie elsewhere. The answer will emerge not from policy declarations alone, but from the performance of firms, the development of skills and suppliers, and the economic relationships that the region manages to build over time.

(The writer is a retired Special Secretary, Government of India, and a commentator on financial, geoeconomic and regional issues. The views expressed are personal. He can be reached at ppmitra56@gmail.com.)