Union Budget 2026: India Prepares to Reduce Reliance on China, Major Policy Shifts Expected

With Budget 2026 just weeks away, the government's focus appears to extend beyond mere taxation and schemes. Discussions are rife about whether India is poised to take concrete steps to reduce its heavy reliance on China. Significant strategic shifts are anticipated, particularly in crucial sectors such as electronics, energy, defense, machinery, and raw materials, while this move is seen as a pivotal step towards bolstering India's economic security and strategic autonomy.

The Risks of Over-Reliance

Over the past few years, the COVID-19 pandemic, global conflicts, and disruptions in supply chains have unequivocally demonstrated the inherent risks of over-reliance on a single country for critical imports. These global events have compelled Indian policymakers to reconsider their approach, realizing that focusing solely on cost-effectiveness is insufficient for long-term stability. These experiences have reshaped India's strategic thinking, pushing the nation. Towards greater self-reliance and the development of resilient supply chains.

The Imperative for Secure Supply Chains

Until now, India's policy has largely been to import goods from wherever they're cheapest and most readily available. However, the government is now recognizing that low prices alone don't guarantee security. If supplies are cut off during a crisis, entire industries can come to a standstill. The government is now actively pursuing a de-risking policy, which doesn't imply a complete cessation of imports, but rather a strategic reduction of dependence where necessary and the development of alternative sources. This approach aims to shield the Indian economy from future shocks.

China Imports: A Major Concern

India's imports from China are exceptionally high across several sectors. China holds a dominant share in electronics parts, solar panels, machinery, toys, umbrellas, spectacles, agricultural equipment, and various consumer goods. In some areas, Chinese goods account for as much as 80-90% of imports, posing a significant strategic and economic concern for India. Consequently, the government has identified approximately 100 such products where domestic production can be scaled up to reduce reliance on China, while these products include items that can be manufactured in India or for which alternative sources can be developed.

Potential Measures in Budget 2026

Budget 2026 is expected to introduce a range of measures. On one hand, domestic companies may receive increased incentives, while on. The other, customs duties on certain imported goods could be raised. The objective is to make manufacturing in India more attractive and profitable. Concurrently, Production Linked Incentive (PLI) schemes in sectors like electronics, automobiles, steel, and green energy are likely to be strengthened. This aims to encourage companies to deepen their manufacturing operations in India, moving beyond mere assembly.

Mobile Manufacturing: Beyond Assembly

While India has emerged as a significant player in smartphone production, the reality is that crucial mobile components such as semiconductors, displays, and camera modules are still largely imported. The government's endeavor is now to establish the entire supply chain within India, rather than limiting itself to assembly. Initiatives like electric vehicle and battery plants in states such as Tamil Nadu are considered major steps in this direction, which will help make the country self-reliant in these critical components.

Strategic Shift in the Energy Sector

India remains dependent on imports for oil and gas, but the government is now adopting a policy of diversifying its supply sources rather than relying on a single region. Alongside this, there is a strong emphasis on renewable energy, including solar, wind, and green hydrogen. This strategy aims to mitigate the impact of future global oil crises on the nation's economy and ensure energy security, while this policy will help protect India from the volatility of the global energy market.

New Technologies, New Dependencies

The era of electric vehicles, batteries, and green energy is bringing forth new forms of dependencies. India's self-reliance in critical minerals like lithium, cobalt, and rare earth minerals is currently very low. The government is now working on investing in overseas mineral assets, securing supply agreements, and promoting recycling. A national mission has also been launched for this purpose, with thousands of crores of rupees proposed for investment, to ensure the supply of these vital minerals. Dependence on imports in the defense sector directly impacts national security. For this reason, the government has prioritized domestic defense production. Indian companies are now being given more opportunities in defense procurement, and avenues for exports are also being opened. This encourages large-scale production, aiming to transform India into a major exporter of defense equipment. This step won't only strengthen the nation's security but also boost economic growth.

Expert Views and the Path Forward

Experts believe that merely increasing import taxes won't suffice. The real need is to develop technology, skills, finance, and large-scale production capabilities. If India is truly to reduce its dependence on China, companies must be strengthened at every level, from design to manufacturing. This will require a comprehensive policy framework and long-term investment to make Indian industries globally competitive. Budget 2026 is expected to see the government making decisions with risk in mind, while the policy will no longer be solely about cost reduction but about enhancing economic security and strategic strength. If this plan is implemented effectively, in the coming years, India couldn't only reduce its import dependence but also emerge as a solid global manufacturing hub, propelling the nation's economy to new heights.