New Delhi [India], June 19 (ANI): India must accelerate domestic manufacturing and reduce its dependence on foreign capital, defence equipment, energy, and technology amid rising geopolitical tensions and global protectionism, according to a report by Kotak Securities.
External vulnerabilities on the rise
In its report, Kotak Securities stated that the country's external vulnerabilities have increased over the past few years, necessitating stronger policy interventions aimed at self-reliance. The report examined measures to reduce India's external dependencies given the sharp increase in geopolitical tensions, resource nationalism, and technology 'control' in the past two to three years.
According to the brokerage, India continues to have a high degree of external dependency across four areas: capital, defence, energy, and technology. The report argued that a greater thrust on domestic manufacturing could be the only option for addressing many of these vulnerabilities.
Capital flows and trade imbalance
On capital flows, Kotak highlighted India's structural trade imbalance and warned that future challenges to services exports could worsen external financing needs. The report noted that India's large and ongoing trade deficit, averaging 6.4% of GDP between FY2016 and FY2026, along with possible pressures on services exports and overseas income inflows, could widen the current account deficit. This would make the country more dependent on foreign capital unless it takes further steps to reduce goods imports.
The brokerage pointed out that India's manufacturing sector accounts for only about 13% of GDP, significantly below levels seen in several major emerging economies. It recommended expanding domestic manufacturing capabilities and increasing value addition across sectors to reduce import dependence.
Defence self-reliance
On defence, Kotak warned that India's reliance on foreign military systems remains elevated. The report said that India still depends heavily on imported defence equipment, with imports making up an average of 38% of procurement between FY2016 and FY2024. It also noted that the adoption of domestically developed defence systems has been slow. To address this, the report recommended speeding up approvals for locally made defence products, increasing incentives for private-sector defence manufacturers, and gradually reducing defence imports. It also called for a larger role for private-sector defence companies and greater technology transfer from foreign suppliers.
Energy security concerns
Energy security emerged as another major concern. Kotak pointed out that India remains heavily dependent on imported fossil fuels, making it vulnerable to both price shocks and supply disruptions. In the medium term, this can only be reduced through a greater thrust on renewable energy. The report added that it is unlikely India can increase domestic production of crude oil and gas, given resource constraints, while climate-related considerations also limit greater reliance on coal.
Referring to recent geopolitical developments, Kotak said the conflict-related disruption risks in the Middle East underscore India's energy vulnerability. The report noted that the recent blockade of the Straits of Hormuz by Iran in the conflict with Israel and the US demonstrates India's vulnerability to supply disruptions, not just price shocks.
Technology gap
On technology, the brokerage said India faces increasing challenges because of its dependence on imported technologies and the growing strategic competition between the United States and China. To bridge the technology gap, Kotak recommended government-to-government partnerships with countries such as Japan, South Korea, and European nations, deeper collaboration between domestic and foreign companies, and stronger incentives for Indian firms to build global technological capabilities.
The report also stressed the need for greater competition and innovation within India's private sector. 'We believe greater competition would be extremely critical for Indian companies to be globally competitive and stay relevant,' it said.
