The brokerage said India's external dependence has increased significantly over the past few years, making stronger policy measures aimed at achieving greater self-reliance essential. The report stated that escalating geopolitical tensions, resource nationalism and tighter technological controls over the last two to three years have heightened risks to India's economic stability.
According to Kotak Securities, India continues to face a high degree of external dependence in four critical areas: capital, defence, energy and technology. The report stressed that a stronger push towards domestic manufacturing could be the only effective solution to address many of these vulnerabilities.
On capital flows, the brokerage highlighted India's structural trade imbalance and warned that future challenges to services exports could further aggravate external financing requirements. It noted that India's trade deficit averaged 6.4 per cent of gross domestic product between the financial years 2016 and 2026. Possible pressures on services exports and overseas income inflows could widen the current account deficit, increasing dependence on foreign capital unless additional measures are taken to reduce goods imports.
The report observed that manufacturing contributes only around 13 per cent of India's gross domestic product, significantly lower than several major emerging economies. It recommended expanding domestic manufacturing capabilities and increasing value addition across sectors to curb import dependence.
On defence, Kotak Securities warned that India's reliance on imported military systems remains substantial. Imports accounted for an average of 38 per cent of defence procurement between the financial years 2016 and 2024. The report noted that the adoption of domestically developed defence systems has progressed slowly. It recommended accelerating approvals for indigenous defence products, enhancing incentives for private sector defence manufacturers and gradually reducing defence imports.
The brokerage also advocated a larger role for private sector defence companies and called for greater technology transfer from foreign suppliers to strengthen domestic capabilities.
Energy security was identified as another major concern. Kotak Securities stated that India remains heavily dependent on imported fossil fuels, making the country vulnerable to both price fluctuations and supply disruptions. The report said that a stronger focus on renewable energy would be the only viable medium-term solution.
It added that increasing domestic production of crude oil and natural gas is unlikely because of resource limitations, while climate-related concerns restrict greater dependence on coal. Referring to recent geopolitical developments, the brokerage said conflict-related risks in the Middle East have once again exposed India's energy vulnerabilities.
The report noted that the recent blockade of the Strait of Hormuz by Iran during the conflict involving Israel and the United States demonstrated India's susceptibility to supply disruptions in addition to price shocks.
On technology, Kotak Securities warned that India faces growing challenges because of its dependence on imported technologies and the intensifying strategic rivalry between the United States and China. To bridge the technological gap, the brokerage recommended government-to-government partnerships with Japan, South Korea and European countries, deeper cooperation between domestic and foreign companies and stronger incentives for Indian firms to build globally competitive technological capabilities.
The report also emphasised the importance of increased competition and innovation within the private sector. It stated that stronger competition would be critical for Indian companies to remain globally competitive and sustain their relevance in an increasingly challenging international environment.
The findings underline the urgency for India to strengthen self-reliance across strategic sectors as geopolitical uncertainties, technological rivalries and global protectionist policies continue to reshape the international economic landscape.
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