When we depend on a rival for chips, solar panels, medicine ingredients, how worried should we be?

When Covid closed borders, India, the “pharmacy of the world,” discovered how much of its own supply chain originated in China. China makes over four-fifths of the world’s supply of some key drug ingredients, and it has since shown it will use that leverage. It banned exports of gallium and germanium, metals it all but monopolises and that go into chips and weapons. It placed the rare-earth magnets used in cars and missiles under export licences, and it reportedly held back machinery and technicians bound for factories in India.

An import dependence that a rival nation can cut off at will is a liability, however cheap it looks. Defence has always been the honest exception to the case for open trade, but self-reliance would be the wrong conclusion to draw from it. No country on earth produces everything it needs, and no economy has the capability to make everything from microprocessors to chemicals to energy. The remedy is to widen the circle of suppliers. An Indian drug firm uneasy about Chinese ingredients can buy them from Taiwan, Japan, or Brazil instead, and many firms, watching Beijing’s conduct, are already doing so out of plain self-interest.

Self-reliance by decree runs into a further difficulty: capability grows through competition, learning, and access to globally competitive inputs. China’s grip on rare earths took decades of subsidy, a tolerance for pollution that other countries refused, and a willingness to underprice Western entrants into bankruptcy. No government can order that accumulated know-how into existence. When Delhi tried to cut its reliance on Chinese drug chemicals by picking a single company to make each of some twenty key ingredients, drugmakers complained that the scheme had simply created monopolies, since a sheltered firm collects the subsidy and never acquires the capability. The ₹7,280-crore scheme for rare-earth magnets shows the other trap. A magnet is the last link in a chain that begins with refined rare-earth oxides, and India would still buy those oxides from China. The dependence simply moves a step up the chain.

A serious answer draws the list of genuinely strategic goods as narrowly as the evidence allows, what Dani Rodrik calls a small yard behind a high fence. Two questions settle membership. Is the good truly critical to national security, and is China really the only source? Can Indian firms make it competitively, proved by their ability to export rather than by sales made behind a tariff? Where a good clears both tests, India should shield that sector from Chinese imports.

Two forces will push to widen that list regardless. China does not define its own security narrowly, so as it restricts everyday metals and machines, the pressure grows to keep adding goods until a small yard becomes ordinary protectionism. At home, “strategic” is a word every industry learns to use, and once the exception is granted, every lobby will claim it, much as “quality” became the shield of a single producer.

So how worried should India be? Worried enough to spread its suppliers, hold stocks of what cannot quickly be replaced, and build a few strengths alongside friendly countries. Trying to make everything at home would move slower, cost more, enrich sheltered firms without building their capability, and often leave the original dependence intact one step upstream.