Swadeshi is “inevitable and necessary” as the global trading environment is marked by export controls, technology denial regimes and carbon border mechanisms that signal the end of “naïve globalisation”, Economic Survey 2025-26 said.
The Survey said that unlike private corporations in post-war America, Germany, Japan, and East Asia – which either participated in ‘nation building’ while pursuing profits or behaved in an ‘arm’s-length and rules-bound manner’ – Indian corporates have a relative “lack of appetite” to invest efforts towards long-term risk absorption.
“There is a relative lack of willingness and appetite to invest efforts towards long-term risk absorption and becoming globally competitive. Regulatory arbitrage, protected margins, and firm-specific accommodations often dominate productivity enhancement, scale competition, or learning-by-doing,” the Survey said.
The report, however, said that this preference is “rational in an environment” where downside risks are socialised through bailouts, banking forbearance, tariff protection, or retrospective renegotiation. “A corporate sector that externalises risk to the state does not exert pressure for higher state capacity; instead, it generates demand for discretion,” the report said.
Making the case for transformation in corporate culture, Survey said that India is now operating in an environment where access to inputs, technologies, and markets cannot be assumed to be frictionless or permanent.
“In such circumstances, Swadeshi becomes a defensive as well as offensive policy lever: a means to ensure continuity of production in the face of external shocks, and a pathway to build enduring national capabilities that reinforce economic sovereignty. The policy question is no longer whether the state should encourage Swadeshi, but how it should do so without undermining efficiency, innovation, or global integration,” the Survey said.
There has to be a balance between manufacturing and imports, with Swadeshi-oriented policies giving rise to complacency and inefficiency in the past due to a lack of global competition. Substituting imports for local products is justified when production cost is feasible, but the industry has been hindered by coordination failures or long-standing regulatory burdens.
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The Survey pointed out that national transformation is most durable when business leaders see themselves not merely as beneficiaries of growth but as trustees of a larger developmental project. The most successful corporate histories in post-war America, Germany, Japan, and East Asia were marked by firms that invested ahead of immediate returns, treated technological capability and workforce upgrading as civic obligations, and derived legitimacy from strengthening national resilience, enhancing export competitiveness, and promoting social stability, the Survey said.
The survey stressed that a well-designed regulatory architecture is not in itself enough to generate higher state capacity, and must thus be helped out by the corporate sector. “In India, the private corporate sector is not merely a subject of regulation; it is a structural participant in the incentive environment that determines whether the state upgrades its capacity or governs through discretion,” the survey said.
The document also highlighted the short capital allocation horizons of Indian corporates. “Despite notable exceptions, Indian corporate investment is characterised by low R&D (research and development) intensity, caution in frontier manufacturing, and concentration in real estate–linked, regulated, or quasimonopolistic sectors. This reflects not merely culture, but governance structures (in such firms)—family control, succession orientation, weak managerial labour markets, and underdeveloped long-horizon capital,” the document said.
“When firms do not require fast courts, skilled labour at scale, or predictable regulation to generate returns, they cannot function as a forcing mechanism for institutional upgrading. Comparative experience shows that corporates induce state upgrading only under specific conditions, when productivity is the sole path to survival,” it added. The document then went on to cite examples such as post-World War America (with players like Ford, General Motors, and Caterpillar) and Japan’s post-war industrialisation (with players like Toyota, Sony, and Nippon Steel), where private corporations weaved in focus on profitability with responsibility towards broader national projects.
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Private capital expenditure, or capex, has been a particular pain point for the economy in recent times as the government has taken steps to revive consumption demand. While the central government has pushed hard on capex in recent years, with effective capex as a share of GDP rising to 4 per cent from 2.6 per cent between FY20-25, economists are of the view that private investment remains subdued.
