India's Role in Global Supply Chain Restructuring: Opportunities for Foreign Companies

Why Global Supply Chains Are Restructuring — And Why India Benefits

The era of hyper-concentrated global supply chains is ending. Between 2020 and 2026, a series of shocks — the COVID-19 pandemic, US-China trade tensions, semiconductor shortages, and the Russia-Ukraine conflict — exposed catastrophic vulnerabilities in supply networks that relied on single-country manufacturing hubs. The result has been the most significant restructuring of global supply chains in modern economic history.

India stands at the epicentre of this shift. What began as a "China+1" diversification strategy has evolved into something far more structural. Multinationals are no longer looking at India as a fallback or secondary option — they are establishing long-term manufacturing operations driven by competitive cost economics, a workforce of over 500 million people, and a domestic market of 1.4 billion consumers.

For foreign companies evaluating India, the opportunity window is narrow but significant. The convergence of government incentives (Production Linked Incentive schemes worth over INR 1.97 lakh crore), infrastructure upgrades (the Special Economic Zone overhaul, Dedicated Freight Corridors, and new airports), and India's improving logistics performance creates a compelling case for supply chain investment in 2025-2026.

The China+1 Strategy: From Theory to Execution

The China+1 strategy — maintaining existing Chinese operations while adding a second manufacturing base — has moved from boardroom discussion to active execution. Three forces are driving this acceleration:

Geopolitical Risk Repricing

US-China trade tensions have resulted in cumulative tariffs exceeding 100% on certain Chinese goods entering the United States. The EU's Carbon Border Adjustment Mechanism (CBAM) adds further cost pressure on Chinese exports. Companies that once viewed geopolitical risk as theoretical now price it into every sourcing decision.

Cost Arbitrage Narrowing in China

Chinese manufacturing wages have risen 8-10% annually over the past decade. Average manufacturing wages in coastal Chinese cities now exceed USD 700 per month, compared to USD 200-350 in India's major industrial clusters. When combined with rising energy costs and stricter environmental compliance in China, India's cost advantage has widened.

India's Policy Response

India has responded with its most aggressive industrial policy in decades. The Production Linked Incentive (PLI) scheme, covering 14 sectors with INR 1.97 lakh crore in incentives, directly targets supply chain relocation. As of September 2025, PLI schemes have attracted INR 2 lakh crore in actual investments, generated incremental production of over INR 18.7 lakh crore, and created 12.6 lakh jobs.

Sector-by-Sector Opportunity Map

Electronics and Semiconductor Manufacturing

India's electronics manufacturing has witnessed the most dramatic supply chain shift globally. Under PLI support, electronics production rose from INR 2.13 lakh crore in FY 2021 to INR 5.25 lakh crore in FY 2025 — a 146% increase in four years. Mobile phone exports surged nearly eight-fold, growing from INR 228.70 billion in FY 2020-21 to INR 2 trillion in FY 2024-25.

Apple's India manufacturing story is particularly instructive. India assembled iPhones worth USD 22 billion in the 12 months ending March 2025, up 60% year-on-year. India's share of global iPhone manufacturing is projected to reach 25-35% by 2026, with Foxconn's new USD 2.6 billion Bengaluru plant set to be operational by 2026. Apple has integrated 45 companies into its India supply chain, creating a mature vendor ecosystem.

The semiconductor opportunity is equally significant. India is positioning itself in the rare earth and assembly segments, critical to semiconductors, electric vehicles, and smartphones. Companies exploring India's semiconductor supply chain should note that the government has approved four semiconductor fabrication and ATMP (Assembly, Testing, Marking, and Packaging) plants with combined investment exceeding USD 15 billion.

Automotive and Auto Components

India is the world's third-largest automobile market, and the auto-components PLI scheme has attracted about INR 29,500 crore in investment, generating nearly 45,000 jobs by early 2025. German and Japanese automakers have been the most aggressive in shifting supply chains to India. Companies evaluating this sector should review our guide for German automotive suppliers and the Japanese auto-electronics supply chain analysis.

The EV transition creates additional supply chain opportunities. India's battery assembly, motor manufacturing, and charging infrastructure sectors are attracting significant foreign direct investment under the automatic route.

Pharmaceuticals and Medical Devices

India has transitioned from a net importer of bulk drugs (INR 1,930 crore deficit in FY 2021-22) to a net exporter (INR 2,280 crore surplus in FY 2024-25). The PLI scheme for pharmaceuticals has strengthened India's position in active pharmaceutical ingredient (API) manufacturing, reducing dependence on Chinese inputs.

For foreign pharmaceutical companies, India offers both contract manufacturing (CDMO) and direct manufacturing routes. The regulatory pathway through CDSCO has been streamlined, and companies can leverage India's chemical manufacturing infrastructure for integrated operations.

Renewable Energy and Solar Manufacturing

Under the PLI scheme for high-efficiency solar PV modules, investments worth INR 48,120 crore have been committed, generating nearly 38,500 direct jobs as of June 2025. India aims to have 500 GW of non-fossil-fuel energy capacity by 2030, creating massive demand for domestically manufactured solar panels, wind turbines, and battery storage systems.

Textiles and Apparel

India's textile sector is benefiting from supply chain diversification away from China and Bangladesh. The PLI scheme for technical textiles and man-made fibres targets products where India has historically been an importer. For fashion and apparel brands, India offers vertically integrated manufacturing from yarn to finished garment.

Defence and Aerospace

India permits 74% FDI under the automatic route in defence manufacturing (100% for select categories with government approval). The government's defence procurement policy mandates increasing domestic content, creating opportunities for foreign defence companies to establish manufacturing in India. Two Defence Industrial Corridors — in Uttar Pradesh and Tamil Nadu — have been designated with combined investment targets exceeding INR 20,000 crore. Companies in this sector should review our aerospace and defence FDI guide for detailed cap and offset policy analysis.

Food Processing

India permits 100% FDI in food processing under the automatic route. The food processing sector grew 7.4% annually over the past five years, driven by changing consumer preferences and organized retail expansion. The PLI scheme for food processing has attracted commitments from major global food companies. India's position as the world's second-largest producer of fruits and vegetables creates a strong raw material base for food processing operations. The food processing licence and cold chain guide covers regulatory requirements in detail.

FDI Framework for Supply Chain Investment

Understanding India's Foreign Exchange Management Act (FEMA) framework is critical for structuring supply chain investments. Key considerations include:

Entity Structure Options

Most foreign manufacturers establish a wholly-owned subsidiary (WOS) as a private limited company in India. This allows 100% FDI under the automatic route in most manufacturing sectors. The choice between a branch office and subsidiary has significant tax and liability implications — a subsidiary is almost always preferred for manufacturing operations.

For companies testing the waters, a liaison office can serve as a market exploration vehicle before committing to full manufacturing. However, liaison offices cannot engage in commercial or manufacturing activities. Companies weighing these options should read our branch office vs liaison office comparison.

Tax Incentives for New Manufacturing

The concessional 15% corporate tax rate (effective rate 17.16% including surcharge and cess) under Section 115BAB was available only to new manufacturing companies that commenced production by 31 March 2024. That window has now closed and was not extended. New manufacturers setting up today instead opt for Section 115BAA, which offers a 22% base rate (effective rate approximately 25.17% including surcharge and cess) with no Minimum Alternate Tax (MAT) liability. This is still among the more competitive corporate tax rates in Asia.

Additionally, units operating in Special Economic Zones receive tax holidays and customs duty exemptions. India currently has 276 operational SEZs housing 6,279 units, with SEZ exports reaching USD 172.27 billion in 2024-25.

FDI Inflows and Trends

India recorded FDI inflows of USD 81.04 billion in FY 2024-25, a 14% rise from the previous year. Manufacturing FDI increased 18% to USD 19.04 billion. FDI equity inflows during April-December 2025 (FY26) showed a robust 22% year-on-year expansion, signaling growing global confidence in India's manufacturing ecosystem.

Logistics Infrastructure: The Enabler

India's logistics transformation directly impacts supply chain viability for foreign manufacturers. Key developments include:

Dedicated Freight Corridors

The Eastern DFC (1,337 km, fully operational) and Western DFC (1,506 km, over 90% complete) are transforming freight economics. Traffic on DFCs has increased from 247 average trains per day in FY 2023-24 to 352 in FY 2024-25. The last 102 km stretch of the WDFC between Vaitarna and JNPT is poised for commissioning by March 2026. A new 2,052 km east-west DFC connecting Dankuni (West Bengal) to Surat (Gujarat) has been announced in Budget 2026-27.

Port Capacity Expansion

The Sagarmala Project aims to double India's port handling capacity. Five Multimodal Logistics Parks (MMLPs) at Jogighopa, Chennai, Bengaluru, Nagpur, and Indore are expected to become operational in FY 2025-26 and FY 2026-27. These MMLPs will handle approximately 700 million metric tonnes of cargo when fully operational.

Logistics Cost Reduction

India's logistics costs have declined from approximately 14% of GDP to 7.8-8.9% — approaching international benchmarks. India climbed six places on the World Bank's Logistics Performance Index, now ranking 38th globally (up from 54th in 2014). The PM Gati Shakti National Master Plan has onboarded 44 Central Ministries and 36 States/UTs, integrated 1,614 data layers, and assessed 208 major projects worth INR 15.39 lakh crore.

State-Level Competition for Foreign Investment

Indian states actively compete for supply chain investment through differentiated incentive packages. Foreign companies should evaluate state policies alongside central government schemes. Key manufacturing states include:

• Tamil Nadu: Strong auto and electronics ecosystem, Foxconn and Tata Electronics iPhone assembly
• Gujarat: Petrochemicals, pharmaceuticals, and renewable energy hub with port access
• Maharashtra: Diversified manufacturing with proximity to JNPT (India's largest container port)
• Karnataka: Electronics, aerospace, and defence with strong R&D talent pool
• Uttar Pradesh: Defence corridor and electronics manufacturing with land availability

Our guide to 8 Indian states competing for foreign investment provides detailed comparisons of state-level incentives, land costs, and infrastructure quality.

Practical Steps for Foreign Companies

Step 1: Market and Regulatory Assessment

Before committing capital, conduct a thorough assessment of FDI sectoral caps and route requirements (automatic vs government approval). Over 90% of sectors now permit 100% FDI without government approval.

Step 2: Entity Incorporation

Register a private limited company through the SPICe+ portal. The process takes 7-15 business days. Ensure you appoint at least one resident director (an Indian resident who has stayed in India for at least 182 days in the financial year).

Step 3: FDI Compliance

File FC-GPR with the RBI within 30 days of share allotment. File FLA Return annually by July 15. Non-compliance with FEMA timelines can result in compounding penalties.

Step 4: Manufacturing Setup

Obtain necessary licences (factory licence, pollution control board consent, GST registration, IEC for import-export). For manufacturing units, apply for relevant PLI scheme benefits within the applicable window.

Step 5: Supply Chain Integration

Leverage existing vendor ecosystems. India's component manufacturing base has deepened significantly — Apple alone has integrated 45 companies into its India supply chain. Companies can benefit from professional FDI advisory services to navigate the regulatory landscape efficiently.

Cost Comparison: India vs Alternative Manufacturing Destinations

Foreign companies evaluating supply chain relocation typically compare India against Vietnam, Indonesia, Thailand, and Mexico. Each offers distinct advantages, but India's combination of scale, talent, and incentives is increasingly difficult to match.

India's key differentiator is the combination of a massive domestic market with export competitiveness. Companies that manufacture in India can serve the domestic market — projected to become the world's third-largest economy by 2028 — while simultaneously exporting. Vietnam and Mexico, while competitive for export-oriented manufacturing, cannot offer the same domestic demand scale.

India's engineering talent pool is another significant advantage. With over 1.5 million engineering graduates annually and a growing cohort of skilled technicians, India can support both labour-intensive assembly and high-value R&D-intensive manufacturing. Companies establishing R&D centres alongside manufacturing operations — as Samsung and Hyundai have done — benefit from an integrated innovation-production model.

For a detailed sector-by-sector comparison, see our analysis of 7 sectors where India offers better FDI terms than China and Vietnam.

Case Studies: Foreign Companies That Successfully Shifted Supply Chains to India

Apple — Electronics Manufacturing at Scale

Apple's India journey demonstrates how a supply chain shift can scale rapidly. Starting with limited assembly in 2017, Apple now produces 25% of its global iPhone output in India, worth USD 22 billion annually. Tata Electronics (which acquired Wistron's Karnataka facility for USD 125 million) now produces approximately 26% of India's iPhone output. Foxconn's new USD 2.6 billion Bengaluru plant, operational by 2026, will further increase capacity. Manufacturing costs in India run approximately USD 30 per unit compared to USD 390 in the US, demonstrating India's cost competitiveness even for premium products.

Samsung — Integrated Manufacturing Hub

Samsung operates the world's largest mobile phone factory in Noida, producing smartphones, consumer electronics, and components. Samsung's India strategy integrates manufacturing with R&D (three R&D centres) and sales, making India both a production base and a growth market. The company exports India-manufactured phones to over 60 countries.

Suzuki — Automotive Benchmark

Maruti Suzuki — Suzuki Motor's Indian subsidiary — produces over 2 million vehicles annually, making India Suzuki's largest manufacturing base globally. Suzuki's Gujarat plant, established with 100% FDI, exports vehicles to over 100 countries. The depth of Suzuki's local supply chain (over 500 tier-1 and tier-2 suppliers) demonstrates what is possible over a multi-decade commitment.

Risks and Mitigation Strategies

Infrastructure Gaps

Despite improvements, India's logistics infrastructure remains uneven across states. Manufacturing units should be located near existing freight corridors, ports, or industrial corridors. The best Indian cities for manufacturing analysis can help identify optimal locations.

Regulatory Complexity

India's regulatory environment involves central, state, and local authorities. Companies need robust compliance teams or external advisors. Our FEMA-RBI compliance services support ongoing regulatory adherence.

Talent and Labour

While India has a large workforce, specific technical skills may require training investment. The National Skill Development Corporation (NSDC) offers co-funded training programmes for manufacturing sectors.

Intellectual Property Protection

India has strengthened IP protections, but enforcement varies. Register patents and trademarks proactively through the Indian Patent Office and trademark registration services.

Power and Water Infrastructure

While India's power generation capacity exceeds 440 GW, power quality and reliability can vary by state and location. Manufacturing units should evaluate power infrastructure at prospective sites, consider captive power arrangements, and factor in the cost of backup systems. Industrial water availability is another location-specific consideration — some states face seasonal water stress that can impact water-intensive manufacturing.

Compliance Burden

India's compliance requirements — including corporate tax filings, GST compliance, FEMA reporting, and labour law compliance — are substantial. Companies should budget for dedicated compliance resources or engage external firms. Our annual compliance services help foreign companies manage the full spectrum of Indian regulatory requirements without building large internal compliance teams.

Key Takeaways

• India has moved from a "China+1" backup option to a primary manufacturing destination, with FDI inflows exceeding USD 81 billion in FY 2024-25 and PLI schemes attracting INR 2 lakh crore in actual investment across 14 sectors.
• Electronics, automotive, pharmaceuticals, solar manufacturing, and textiles offer the strongest immediate opportunities, with established vendor ecosystems and proven foreign company success stories.
• The Section 115BAA 22% concessional corporate tax rate (effective ~25.17%) for companies foregoing other incentives — the lower 15%/17.16% Section 115BAB rate closed to new manufacturers on 31 March 2024 — along with SEZ tax holidays and PLI incentives significantly reduce the effective cost of establishing manufacturing operations.
• India's logistics costs have dropped to 7.8-8.9% of GDP, dedicated freight corridors are operational, and five new multimodal logistics parks are coming online in FY 2025-27.
• Foreign companies should structure operations as wholly-owned subsidiaries under the automatic FDI route, leveraging professional advisory support for FEMA compliance and state-level incentive optimization.