TOKYO – Narendra Modi’s “Make in India” campaign has become a global brand. As China’s economy slows and multinationals look to diversify supply chains, the world’s most populous nation has eagerly cast itself as the obvious alternative.

This was supposed to be the year the story came together. The Bharatiya Janata Party (BJP) billed 2026 as India’s “Goldilocks moment,” with growth near 7%, inflation under control and a manufacturing push poised to cement India as a critical node in global supply chains.

Speaking at a Bloomberg forum this week, Modi doubled down, portraying India as a trusted partner in a world where trade, technology and supply chains have become weaponized geopolitical “choke points.” He argued that the defining issue of our age is trust, and that India brings a different mindset to the table.

Yet as the year draws to a close, the narrative is looking decidedly less convincing. Investors are growing more cautious on India’s US$4.1 trillion economy, citing lofty equity valuations, vulnerability to higher oil prices during the Iran war, limited exposure to the global AI boom, persistent fiscal and current-account deficits and a government GDP revision economists are still trying to figure out.

The rupee tells the story most clearly. After being Asia’s worst-performing currency in 2025, it has fallen another 6% this year, putting it on course for a repeat performance. India is paying for expensive oil imports with a weakening currency.

A deeper vulnerability receives far less attention: many of India’s fastest-growing industries remain heavily dependent on China. In some sectors, as much as 85% of the machinery, components and industrial inputs feeding Indian factories still originate there. “Make in India” is intended to reduce reliance on China. In practice, much of it runs on Chinese supply chains that becoming more and more ingrained across Asia.

Lithium-ion batteries and solar equipment are emblematic. China supplied roughly $3.9 billion of India’s lithium-ion battery imports in the fiscal year ending March 2026, while China also supplies between 85% and 90% of the rare-earth minerals and magnets Indian industry requires.

The dependence extends well beyond green technologies. A recent study by Koan Advisory Group and the Institute of Chinese Studies found that India relies on China for more than 80% of critical inputs across 71 electronics product categories.

The concentration is particularly acute in components used in motors, cables and switching equipment. More striking still, the number of product lines where India relies overwhelmingly on China has risen from 44 in 2018-19.

The study argues that India’s trade deficit with China is structural, not cyclical. Chinese suppliers remain deeply embedded in the country’s manufacturing ecosystem, particularly in upstream components. As a result, the same deficit-generating sectors continue to widen over time rather than diversify.

The scale is hard to ignore. India’s trade deficit with China reached $112.1 billion in fiscal 2025-26, with electrical machinery alone accounting for $43.1 billion, or roughly 38% of the total.

Lithium-ion batteries have become a particularly sensitive fault line. Imports from China have more than doubled since 2021-22, underscoring how India’s electric-vehicle and electronics ambitions increasingly depend on Chinese supply.

China also supplies around 50% of India’s semiconductor imports, creating a supply chain dependent not just on Beijing but indirectly on access to American chip technology. Good luck competing in the AI age while managing this balancing act.

All this can make capital goods made in India about 40% more expensive than imported Chinese ones of equal or higher quality.

This is not a problem tariffs can solve. India’s weakness lies not in assembling finished products but in producing the critical components that go into them. As long as upstream inputs continue to arrive overwhelmingly from China, rising domestic output will do little to shrink the bilateral trade gap.

For Team Modi, the obvious challenge is accelerating the localization of component manufacturing while expanding support for critical-minerals development.

Where viable alternatives do not yet exist, some analysts argue that New Delhi should selectively allow Chinese manufacturers to build production capacity within India. The goal would be a gradual shift from import dependence toward locally embedded manufacturing.

So far, however, there is little evidence of such a pivot. Twelve years after its launch, “Make in India” remains well short of its ambitions. When Modi unveiled the initiative in 2014, he aimed to raise manufacturing’s share of GDP to 25% and create millions of jobs for a young workforce. Manufacturing still accounts for only about 17% of the economy.

And the timing could hardly be worse. Surging oil and fertilizer costs, tighter monetary policy and a turbulent global economy are forcing New Delhi into damage-control mode. RBI Governor Sanjay Malhotra has spent much of the year defending the rupee rather than enabling the next stage of India’s growth story.

It’s also worth noting how the “sharp decline” in the RBI’s reserves “is a cause of concern” in global markets, notes Ritesh Bhansali, deputy chief executive officer at Mecklai Financial Services. Bhansali worries that the RBI’s aggressive intervention policy “is the only factor” keeping the rupee from deeper declines.

Meanwhile, another weakness is becoming harder to ignore: India’s persistent export of talent. For more than a decade, the country has been one of the world’s leading suppliers of skilled workers and remains the largest recipient of remittances. Officials celebrated the record $138 billion sent home last year as proof of India’s global reach.

Yet remittances reflect a deeper reality. India continues to produce more skilled workers than its economy can absorb. While demographic advantages help — often paying a growth dividend —

economists increasingly point to a shortage of high-quality jobs at home and stronger demand abroad in sectors ranging from healthcare to engineering and technology.

Though policymakers describe this as a strength, it increasing resembles a constraint. Remittances support consumption, bolster foreign-exchange reserves and help finance India’s current-account deficit.

But they do little to solve a more fundamental problem: the loss of human capital that might otherwise help drive productivity, innovation and technological self-sufficiency at home.

To be sure, the China-plus-one strategy is still delivering wins. Hyundai’s recent decision to invest $15.5 billion in India through 2032 adds to commitments from Suzuki, Toyota, Honda, Apple, Samsung and others. India has been one of the most attractive alternatives to China for multinational manufacturers, offering a scale Vietnam can’t.

But attracting factories is not the same as building an industrial powerhouse.

The deeper challenge is that Modi’s government has often prioritized headline-grabbing victories over the slower work of raising productivity, cutting bureaucracy, improving transparency, strengthening education and creating genuinely competitive manufacturing ecosystems. Those are the foundations that separate assembly hubs from economic superpowers.

As 2026 unfolds, New Delhi still appears more focused on headline GDP rankings, including overtaking Japan, than on the structural reforms needed to sustain long-term growth. Despite the Iran conflict rattling global markets, the International Monetary Fund (IMF) expects India to grow around 7% this year.

More than a decade ago, voters embraced Modi in the hope that he could replicate the “Gujarat model” nationally. Modi rose to national prominence on the strength of his 14 years running the western state of Gujarat.

During that time, he developed a reputation for GDP rates that exceeded the national average with better governance and infrastructure and less corruption. Repeating that success more broadly is proving difficult.

Oil above $100 per barrel is also hitting India hard. Modi’s government imports over 90% of its energy needs. The same is true for roughly half of its crude oil imports, the lion’s share of liquefied petroleum gas and liquefied natural gas (LNG) shipments — all of which come through the Strait of Hormuz. This helps explain why the BSE Sensex stock index is fairing so poorly versus global peers — down more than 14% year to date.

This is a key variable hitting Indian stocks, notes Hari Shyamsunder, a fund manager with Franklin Templeton Asset Management India.

As he tells the BBC: “Markets can absorb crude between $70 and $90, but when prices move above $100 a barrel, it starts putting stress on macro-economic variables such as inflation and also company earnings and margins.” Indian stocks, Shyamsunder says, “are cheaper than they have been on average for the last ten years.”

It hardly helps that “many of India’s large caps [big companies] represent a bygone economic era,” Bernstein Research said in a recent report. “Most are not investing in the future, but consolidating their past, often expecting policy to continue shielding them from global competition.”

Not surprisingly, all the talk of a “Goldilocks moment” is aging poorly. India may be the world’s leading China-plus-one destination. But as long as its factories depend on Chinese inputs, its best talent leaves for opportunities abroad, and structural reforms lag behind ambitions, Modi’s manufacturing revolution will remain more promise than reality.

Early on, Team Modi made big gestures to open sectors, from aviation to defense to insurance to retail, and to increase foreign investment. The efforts even lured giants like Walmart India’s way. Steps to open the pharmaceutical and manufacturing industries hold great promise, too.

Part of the problem is that a 7%-plus growth rate doesn’t ensure that its benefits reach the middle and lower classes. Or to reduce youth unemployment so that more Indians might not seek work abroad.

The failure to create millions more manufacturing jobs is a microcosm of why Modinomics entered the US President Donald Trump 2.0 era on fragile footing. The emphasis has been on high-profile short-term wins rather than on the heavy lifting beneath the surface to cut bureaucracy, increase transparency, level playing fields, strengthen human capital and raise productivity

As 2026 unfolds, Modi still seems more focused on GDP milestones than vital reforms. Case in point: the obsession with topping Japan in GDP terms. India closed 2025 with 7.8% growth, well ahead of China’s 5% pace. Economists had expected the Modi government’s economy to expand around 7.5% this year. That was before the Iran conflict sent shockwaves through global markets.

India overtaking Japan in GDP terms would resonate just as powerfully in Tokyo as in New Delhi. The shock of China surpassing Japan about 15 years ago still lingers. It symbolized the definitive end of Japan’s post‑war economic miracle. It reinforced the sense that the country’s “lost decades” of deflation had left a deeper mark than many wanted to admit.

Yet if India has to rely on Chinese tech to do it, the Modi will have few bragging rights. And India’s masses will see incomes stagnate in ways New Delhi doesn’t appear to see coming.

Follow William Pesek on X at @William Pesek

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