India wants to make more at home. So why are imports still surging?

India’s merchandise imports rose by 20.62% year-on-year to $73.41 billion in May, even as the government is trying to increase self-reliance and cut down on import dependencies. In FY26, India’s total goods imports were $776 billion.

Back-of-the-envelope calculations show that India’s imports have risen by 7% or more annually in the past few years, barring FY24, when they contracted by 5.3%. A recent report by Exim Bank sums up the changing nature of India’s import requirements over the past decade. In 2015, India did not feature among the top 10 importing countries globally, but by 2024 it was the seventh largest importer, accounting for 2.9% of global imports.

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But India’s imports have been rising significantly over the years as the economy expands further, and experts highlight that not all imports are bad. In fact, most developing countries have higher imports, especially of technology and capital goods. The challenge arises during crises like the present one, when financing imports becomes costlier, and if domestic manufacturing capabilities do not scale up in the long run. India has been having trouble on both these fronts.

Amitendu Palit, Senior Research Fellow and Research Lead (Trade and Economics), Institute of South Asian Studies at the National University of Singapore, says that under normal circumstances, higher imports and trade deficit show greater absorption in an economy.

“This is usually normal for a large developing economy like India, which is growing at a fast rate. However, persistently high imports of essential items can create other macroeconomic problems,” he warns. That could deplete foreign exchange and result in higher domestic costs of several items.

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Along with a lack of or inadequate natural resources in sectors like energy and gold, a mix of trade policies, challenges in scaling up domestic manufacturing and lower expenditure on research and development are often attributed as reasons for India’s continued import dependence.

Biswajit Dhar, development economist and former professor at Jawaharlal Nehru University, traces India’s import dependency to the late 1980s, when India started liberalising. “We did not give sufficient importance to strengthening our domestic capabilities across sectors, be it in manufacturing or agriculture. In contrast, Southeast and East Asian countries followed a twin-track strategy, liberalising their economies while strengthening sectors where they wanted to build competitiveness. China was, in fact, very conservative about lowering tariffs and only reduced them in sectors where it needed to import,” he says.

The classic example, he says, is of the electronics sector, where India had good domestic capabilities and companies in the 1990s. But in 1997, India signed the Information Technology Agreement at the WTO and committed to eliminating tariffs on a large range of electronic products, effective from 2000, Dhar says. That impacted the domestic sector, which was rising and needed support.

“We did this across sectors, including edible oil, where we were self-sufficient until the late 1980s and then in the 1990s, the government decided to start importing palm oil,” he contends.