The classic Mundell-Fleming trilemma — the idea that an open economy cannot simultaneously fix its exchange rate, control monetary policy, and allow free capital flows — is well known. Less discussed is the impossible growth trinity India faces: three key import dependencies that do not diminish as the economy grows but instead become more entrenched with each percentage point increase in GDP.

Donald Trump’s shifting policies have heightened this vulnerability. It is a structural issue with three main components. However, this weakness existed before Trump and will persist afterwards.

The first is energy. India relies on imports for over 90 per cent of its crude oil, and the IEA forecasts demand will increase by one million barrels per day by 2030, surpassing other nations. A less recognised aspect is the cumulative impact: each new industrial corridor, IT hub, or data centre further adds to India’s inelastic import bill. Without the buffers, diversification, and routing options that other advanced economies established years earlier, India cannot simply grow its way out of energy dependence.

The second component, gold, presents a paradox. Indian households are estimated to possess around 32,000 tonnes of gold, valued at roughly $4.7 trillion at current rates — more than India’s GDP for FY25. Additionally, temples, trusts, and the RBI hold another 5,000 tonnes. India is both the world’s largest private gold holder and one of its top importers, with FY26 imports reaching a record $72 billion. These imports continue not because India lacks gold, but because much of its gold is kept outside the financial system. During periods of global uncertainty — of which FY26 had several — there’s a tendency to shift from bank deposits to bullion, which worsens the current account deficit precisely when external conditions are most challenging.

The third component gets the least focus and poses the greatest future risk. India imported electronics and components worth over $120 billion in FY 2025-26, with semiconductors as the fastest-growing category. Electric vehicles require lithium, cobalt, and nickel — none of which India produces at scale. Defence modernisation relies heavily on advanced electronics sourced mostly from abroad.

The 2021-23 global chip shortage showed what supply chain disruptions look like: assembly lines halted, export orders missed, and seemingly reliable supply chains revealed single points of failure. Building a manufacturing export strategy around semiconductor-heavy industries — electronics, EVs, defence — without strategic stockpiles of chips or minerals exposes a structural vulnerability similar to that long existing in energy.

Energy, gold, and critical minerals constitute the so-called impossible growth trinity. In FY26, total imports reached $979 billion, while exports were $860 billion. Under pressure, this gap widens: imports remain inelastic, and exports are hit hard by disruptions, including increased freight costs, uncertain inputs, and buyers shifting their orders elsewhere. Rather than easing with growth, this trinity becomes more strained.

What peers built

Japan and South Korea share India’s energy dependency but not its vulnerability. Japan’s Economic Security Promotion Act designates critical goods, including semiconductors and crude oil, and requires supply plans for each, deeming industrial continuity a national security issue. Japan’s industry ministry approved eight semiconductor supply plans supported by ¥100 billion in subsidies, with another ¥100 billion allocated to domestic chip manufacturing.

South Korea’s Framework Act on Supply Chain extends further: it establishes a Supply Chain Committee, implements a three-year rolling resilience plan, designates critical items, and introduces an early warning system. Additionally, it has a KRW 50 billion annual Stabilisation Fund for key minerals and a KRW 50 trillion fund for semiconductors, batteries, and biopharma. Even as the 2026 Hormuz disruption peaked, South Korea’s current-account surplus reached a record $37.33 billion in March 2026 alone, with exports surging 57 per cent year-on- year — the direct dividend of a supply-chain architecture enshrined in law before it was needed. In Korea’s approach, the law, the fund, and the export strategy serve as integrated instruments.

China has spent 20 years responding by developing its domestic chip industry, building strategic petroleum stocks totalling 1.5 billion barrels, and physically bypassing the Strait of Hormuz via the ESPO overland oil pipeline and the Power of Siberia gas pipeline. These pipelines supply the Chinese industry directly, avoiding tankers, chokepoints, or war-related risks. The April 2026 State Council regulations on supply-chain security formalised a long-standing practice: maintaining critical input supplies is a government responsibility, not solely a market-driven outcome.

What India must do

India’s semiconductor ambitions, including the India Semiconductor Mission and approved fabs at Tata Electronics and CG Power, are a promising start. However, a fab alone is not enough without a supply chain law to serve as a foundation. India should establish a statutory Supply Chain Resilience Fund modelled after Korea’s, with official designation of critical goods, co-investment requirements for semiconductors, critical minerals, EV battery inputs, and defence components. An early warning system to monitor supply stress before crises occur is essential. A dedicated Supply Chain Resilience Fund — a Korea-style instrument that India does not yet have — would need to be seeded at no less than ₹50,000-75,000 crore to be credible at scale.

Clearly, a case for export-insurance: India’s FY 2025-26 merchandise exports stood at $441.8 billion; preserving even 1 per cent of that base through a disruption year — holding inventories, securing alternative sources and maintaining logistics — saves $4.4 billion, a return that justifies the fund’s cost many times over in a single shock event.

Japan and South Korea have long carried energy dependence as a dead weight on one leg — and still swam faster than most. India carries that same weight, adds critical minerals on the other leg, and then, alone among major economies, ties gold around its neck before it dives in.

The issue with gold is financial, not fiscal. India holds $4.7 trillion in privately held gold. To make this asset productive, investing in gold ETFs, using derivatives, fiscally incentivising the substitution of physical imports, and developing a liquid domestic gold-derivatives market can transform a $72 billion yearly import into a local financial activity. The demand for bullion, driven by savings, is logical and will not be suppressed. It can be redirected if the domestic financial instrument is genuinely competitive with imported gold bars.

Japan has developed its resilience framework over the past forty years. South Korea adopted the supply-chain law proactively. China built pipelines, accumulated reserves, and designated critical inputs as a national priority — long before crises tested these measures.

India possesses the ambition, market capacity, and emerging policy tools. Initiatives like the India Semiconductor Mission, the UAE energy partnership, and critical minerals diplomacy are in place. However, what’s lacking is a cohesive legislative backbone, a funded stockpile to cushion future shocks, and the institutional urgency to act while opportunities remain. This trinity is not just a forecast. It exists.

Nair is former Director of National Institute of Securities Markets; Shumugam is Partner, MCQube

Published on June 16, 2026