From Subsidies to Strength: Can India's Industrial Push Deliver Real Competitiveness?

The Union Cabinet's latest economic approvals reveal a government determined to build strategic industries rather than merely regulate markets. From Semicon 2.0 and a new National Urea Investment Policy to measures improving talent mobility with the UK and opening fresh opportunities for the pharmaceutical sector, the State is once again placing industrial policy at the centre of economic strategy. In a world disrupted by supply-chain shocks, geopolitical rivalry and technological fragmentation, this shift is understandable. Yet history offers a cautionary lesson: industrial policy succeeds not because governments spend more, but because they eventually make themselves less necessary.

Unlike the protectionism of the Licence Raj, today's industrial policy seeks to integrate India into global value chains, much like the US CHIPS Act, the EU Chips Act and China's industrial strategy. But ambition alone cannot guarantee competitiveness.

The centrepiece, Semicon 2.0, allocates nearly ₹1.28 lakh crore to deepen India's semiconductor ecosystem across fabrication, design, packaging, materials, equipment and talent. If realised, it could attract ₹4 lakh crore in investments and significantly expand electronics manufacturing. The strategic logic is undeniable. India imports most of the chips it consumes despite a domestic market exceeding $50 billion.

However, semiconductor manufacturing is among the world's toughest industrial challenges. India enters late into a market dominated by Taiwan, South Korea and the United States. It still depends overwhelmingly on imported wafers, lithography equipment, specialty chemicals and chipmaking machinery. Even domestically manufactured chips may contain largely imported inputs. Moreover, the current strategy focuses primarily on mature nodes and packaging rather than advanced logic chips where technological leadership and higher value addition lie.

Execution remains the greater test. Semiconductor fabs require uninterrupted power, millions of litres of ultra-pure water, specialised suppliers, efficient logistics and highly skilled process engineers. India possesses world-class chip designers but far fewer fabrication specialists. Approvals are not factories, and investment commitments are not production. Public subsidies should therefore be judged not by headline outlays but by operational fabs, indigenous technology, domestic value addition and export competitiveness.

The fiscal trade-off is equally important. Semiconductor manufacturing creates strategic capability but relatively limited direct employment. Every rupee committed to capital-intensive subsidies is a rupee unavailable for education, public health, agricultural research or scientific innovation. Industrial policy is justified where markets fail, but its opportunity costs deserve equal scrutiny.

The National Urea Investment Policy similarly seeks to reduce fertilizer imports and strengthen food security through expanded domestic capacity. Greater self-reliance is desirable after repeated global supply disruptions. Yet increasing production alone cannot resolve the deeper flaws of India's fertilizer regime.

Massive urea subsidies continue to encourage excessive application, worsening the imbalance between nitrogen, phosphorus and potassium, degrading soil health and polluting groundwater. New gas-based plants may improve efficiency, but India will remain dependent on imported natural gas, while coal gasification raises environmental concerns. Instead of merely expanding capacity, policy must gradually shift towards balanced nutrient use, nano-fertilizers, green ammonia and farmer-centric reforms that improve productivity rather than perpetuate subsidy dependence.

The India-UK Double Contributions Convention and the expiry of patents on blockbuster drugs such as semaglutide present more market-driven opportunities. Lower social security costs will facilitate professional mobility, while India's pharmaceutical industry can leverage its strength in affordable generics. Yet these gains should not be overstated. Mobility benefits will remain modest unless broader trade commitments improve market access. Likewise, India's pharmaceutical success cannot rest indefinitely on generic medicines. The country remains the world's pharmacy but not yet its laboratory, constrained by modest research investment, dependence on imported active pharmaceutical ingredients and limited innovation in novel drug discovery.

Across these initiatives runs a common thread. Subsidies and production incentives can accelerate investment, but they cannot substitute for competitiveness. India's mixed experience with Production Linked Incentive schemes shows that rising output does not automatically translate into deeper domestic value addition or globally competitive firms.

The harder reforms receive far less attention: skilled human capital, research and development, labour flexibility, reliable infrastructure, lower logistics costs, faster contract enforcement, regulatory certainty and stronger environmental governance. These, rather than fiscal incentives alone, determine whether industries become globally competitive.

India's industrial ambitions are timely and strategically necessary. But self-reliance cannot become another name for permanent state support. Industrial policy should function as a bridge, not a crutch. The true measure of success will not be the size of Cabinet approvals but whether today's subsidies evolve into tomorrow's innovation, exports and technological leadership. In the long run, nations become economic powers not by subsidising industries forever, but by creating institutions that allow them to compete without subsidies.