Has India’s industrial policy surge paid off?

How much has India’s use of protective industrial policy really grown?

In the four years after the pandemic (2022‑25), India averaged 239.3 new protective measures annually, nearly double the 124.8 it averaged in 2016‑19. A protective measure is anything that gives domestic firms an edge over foreign ones: an import ban, a local‑content rule for government purchases, a cash subsidy to domestic producers. By this count, India is an industrial‑policy giant. Its neighbours barely register on the same scale. Bangladesh introduced 12 measures a year in 2022‑25, Sri Lanka 9, Nepal 2.8, and Bhutan 0.3.

You are looking at a country that has weaponised state purchasing and subsidy budgets to an extent its South Asian peers have not. But the counting rule is important: every measure counts as one, whether it is a sweeping import ban or a tiny tweak to a tax break. That flattens the real money behind each intervention into a simple count.

Is India alone in this protectionist turn?

No. The whole world is doing it too. In 2010, countries introduced 5,953 new industrial policy measures globally. By 2025, that figure had risen to 9,171. Protective measures, the ones that shield domestic producers from import competition, grew even faster, from 4,241 in 2010 to 7,230 last year. The surge began well before COVID, but the pandemic poured petrol on it.

Advanced economies, in particular, started intervening at a scale that would have been unthinkable a generation ago. India’s surge, in other words, is riding a powerful global wave. It is not an outlier; it is one of the bigger surfers on it.

How does India rank among the big protectionist players?

Put the raw counts side by side and India sits in sixth place globally, behind the United States (746.5 measures per year in 2022‑25), China (725.5), Brazil (339.3), Italy (291.3) and Germany (267.8). Among emerging economies, only China and Brazil are more active. India’s 239.3 measures a year is nearly double what it was before 2020, while some other big users like Canada actually became less active. Raw counts, however, do not tell you how much economic weight each measure carries. An import restriction in the United States covers a far larger market than one in India. So the ranking gives you the volume of the protectionist drumbeat, not the decibel level.

What tools does India use to protect its industries?

India’s playbook looks very different from the rest of South Asia. In Sri Lanka, 77.8% of all protective measures are import restrictions. In Nepal, the figure is 54.5%. In India, import restrictions account for only 22.5% of the total. Public procurementpublic procurementWhen the government buys goods or services. From roads and bridges to stationery and laptops, the government is a massive shopper. Industrial policy turns that shopping list into a tool: prefer local suppliers, even if they are more expensive.India’s distinctive use of procurement — 22.8% of its protective measures — sets it apart from neighbours., where the government uses its own buying power to favour local firms, makes up 22.8% of India’s measures, compared to near zero in Bangladesh, Sri Lanka and Nepal.

Subsidies are the largest slice at 29.7%. The Indian state is a massive buyer, with government procurement spending at roughly 20% of GDP, more than twice the median for emerging economies. That is how Delhi turns a shopping list into an industrial policy: when the government decides to buy Indian steel, Indian cement or Indian electronics, it can reshape entire supply chains without touching a single tariff rate.

Which kind of industries does India choose to protect?

Not dying ones. The stereotype of protectionism defending uncompetitive sunset industries does not hold for India. The World Bank’s analysis shows that protection flows to sectors with higher import competition, a one‑percentage‑point rise in a sector’s import share predicts 0.47 more protective measures, which is a strong and statistically significant relationship.

But it also flows to exporting sectors (coefficient 0.39) and, in manufacturing, to sectors that pay higher hourly wages (0.24), have larger firms by employment (0.21) and are more productive (0.15). The Indian state is not propping up the old; it is backing the strong, betting that a little extra shelter will turn competitive firms into world‑class ones. The catch is that these are correlations, not proof that the policies themselves caused those sectors to be high‑wage or productive.

Which specific sectors get the most protection?

About half of all protective industrial policy measures target manufacturing, even though manufacturing accounts for only about 14% of South Asian employment. Within manufacturing, food processing still claims the largest share, 7.5% of protective measures in 2022‑25, but that share has fallen from 11.9% in 2016‑19. The big riser is electronics, which has jumped to 6.6% of measures in the last few years, a direct reflection of the production‑linked incentive schemes and the broader push to make India an electronics manufacturing hub. Other heavily protected sectors include civil engineering (5.7%), basic metals (5.4%) and chemicals (5.4%). The shift from food to electronics is the story of India’s industrial policy in the 2020s, moving from the shop floor of the past to the ambitions of the future.

How high is India’s tariff wall compared to the world?

India’s average applied import dutyapplied import dutyThe actual tax rate a country charges on incoming goods at the border. It is often lower than the maximum rate it has promised at the WTO. It is what a real importer pays, right now.The 15.8% figure is India’s applied duty, the price wall its industrial policy puts between Indian consumers and foreign goods. is 15.8%. That is nearly double the emerging‑economy median of 8.5% and roughly triple the 25th percentile of 5.6%. Only Sri Lanka, once you include its para‑tariffs, is higher in the region at 19%. In Bangladesh, the figure is 14%. A simple average like this masks enormous variation, some goods face duties well over 100% while many inputs are duty‑free, but it tells you what the typical importer bumps into. India is not quietly nudging the tariff dial; it has built a wall that is among the steepest in any large economy.

Do India’s trade defence measures actually cut imports?

The honest answer is half yes, half we cannot tell. Import‑restricting measures, anti‑dumping duties, safeguards, outright import bans, do reduce imports. After three years, the cumulative decline is about 15%, though the confidence band is wide, with the possible effect ranging from a 28% drop to a 49% increase.

That uncertainty is what trade data looks like: real, but noisy. Export incentives are a different story. After four years, the estimated effect on exports is actually negative at −7.6%, but the confidence interval stretches from −51.2% to +87.3%.

That range includes both a large boost and a large collapse. Statistically, we simply cannot say whether these export promotions work. If you are spending public money on them, that should worry you.

Has the protection push created jobs where it matters?

The payoff in jobs is nearly invisible. In India, the non‑agricultural sectors that received the fewest industrial policy measures, mostly services, grew employment at 0.91% a year. The sectors that received the most protection grew at 0.95% a year. The difference is trivial. The country’s great job machine of the past decade has been services, which got almost no targeted industrial policy support.

In Bangladesh, by contrast, the least‑protected non‑farm sectors grew employment at 4.26% a year, a transformational pace. The data covers only formal‑sector workers, so if manufacturing has surged in informal employment, this picture could change, but from what the formal numbers show, the protection wall did not produce a noticeable jobs bump.

Who pays the bill for the protectionist wall?

You do. Every Indian household, across every income level. The World Bank modelled what would happen if the proposed free trade agreements with the European Union and the United Kingdom were in place and the tariff cuts they would bring took effect. The answer is that every single household gains in consumption. Rural households gain more than urban ones.

The poorest rural quintile gains 0.33%, as does the richest rural quintile. Urban households gain between 0.24% and 0.26%. These are not large numbers, we are talking about a fraction of a percent of a family’s monthly spending, but the direction is unanimous. A tariff is a tax, and when you lower it, households keep more of what they earn. The protection wall India has built is paid for quietly, every day, at the kitchen table.

Do lower tariffs really help the poor the most?

Yes. Real income effects mirror the consumption story. Tariff cuts raise real income for every household, and again rural families gain proportionately more. The poorest rural quintile sees a 0.22% increase in real income; the richest urban quintile, 0.19%. Why do the poor gain more?

Poorer households spend a larger share of their budget on traded goods, food, clothing, basic durables, and those are exactly the products that bear heavier tariffs in India today. Removing the tariff is like giving a small, permanent tax cut that is tilted toward those who can least afford the existing burden. The caveat is that these are static first‑order estimates; they assume tariff cuts fully pass through to consumer prices and do not count the possibility that more exports could raise wages or attract investment.

Can India afford its industrial policy ambitions?

The fiscal maths is tight. India’s tax revenue averaged 18% of GDP between 2019 and 2023, below the emerging‑economy average of 20.4%. In South Asia, only the Maldives (20.1%) and Nepal (18.6%) collect more; Bangladesh (8.5%) and Sri Lanka (10%) collect far less. Government debt is already above the EMDEEMDEEmerging market and developing economies. These are countries that are not yet fully wealthy but are not the poorest either. India, China, Brazil and Bangladesh are examples. Advanced economies (AEs) are the rich ones like the US, Germany and Japan.Comparisons between India and the EMDE median ground the story in peer context. average. Into this constrained space, India has loaded ambitious spending programmes.

The production‑linked incentive scheme, the flagship of the industrial policy push, had disbursed only about 12% of its allocated funds by September 2025, held back by bureaucratic hurdles and inter‑ministerial coordination problems. You can announce a policy in Delhi, but getting the money out the door and into a factory floor is a different exercise entirely.

Can India’s infrastructure keep up with the policy intent?

Even well‑designed industrial policy hits a wall if it takes weeks to clear goods through customs. For a medium‑sized Indian firm, clearing an import takes about 16.3 days, and an export takes about 19.9 days. The typical emerging‑economy firm clears imports in 5.1 days and exports in 5.3 days.

That is a three to fourfold gap. Even in South Asia, Bangladesh manages in 8.9 days both ways, and Nepal gets it done in 4 to 4.5 days. A factory that waits nearly three weeks for a shipment of components faces a hidden tax on every order, a tax that no tariff schedule captures but that can erase the advantage of any subsidy or local procurement preference. The design of industrial policy in Delhi often meets its match in a customs shed in Mumbai.

Is India’s government machinery capable of executing this strategy?

On paper, India’s bureaucracy is good by the standards of emerging economies. The World Bank’s government effectivenessgovernment effectivenessA World Bank score that measures how well the state machinery works: whether civil servants are competent, rules are predictable, and policies actually get implemented. A high score means the government can get things done.India’s 67.9 percentile score shows its bureaucracy is decent, but the gap to rich countries (88th) is where industrial policy stumbles. index places India in the 67.9th percentile globally, well above the EMDE median of 37.3. Only Bhutan (69.3) rates higher in South Asia.

But the index also reveals the delivery gap. The advanced‑economy median sits at the 88th percentile. That twenty‑point gap between India’s state capacity and that of a typical rich country is where many industrial policies slow down. Complex interventions, production‑linked incentives, phased manufacturing programmes, sector‑specific tax breaks, demand a civil service that can coordinate across ministries, review outcomes, cut dead programmes, and resist capture. India’s government has the design skills; the execution is often what falls short.

Isn’t India opening up even as it builds protectionist walls?

Yes. The story of the last five years is not only about protection. While India was putting up new defensive measures, it was also negotiating its largest ever free trade agreements. The deals with the European Union and the United Kingdom, once in force, will roughly double the share of global output India has preferential market access to: from a current 15.5% to around 33% (adding the 17.5% of concluded but not yet in force agreements).

That would push India ahead of China (30.3%), Turkey (26.8%) and Brazil (3.7%) in FTAFTAFree trade agreement: a deal between countries to reduce tariffs on each other’s goods. Imagine a special market access card that lets your goods enter a partner’s country at a lower tax rate than goods from outsiders.India’s FTAs with the EU and UK are the counterweight to its protectionist surge. coverage. The two strategies, building walls and opening doors, exist in tension. India is betting that the time bought by the walls allows its industries to get strong enough to walk through the doors, but the walls also make the doors harder to open fully.