India vs Vietnam for Manufacturing: Cost, Incentives, Talent & Infrastructure (2026)

Why India and Vietnam Are the Two Leading China+1 Destinations

The global manufacturing landscape has undergone a structural shift since 2020. Supply chain disruptions, US-China tariff escalation, and geopolitical tensions around Taiwan have forced multinational manufacturers to diversify production beyond China. Two countries have emerged as the primary beneficiaries: India and Vietnam.

Both nations offer compelling value propositions, but they differ significantly in market size, cost structures, government incentive frameworks, and regulatory environments. For foreign companies evaluating their China+1 strategy, the choice between India and Vietnam depends on sector, target export markets, scale of operations, and long-term strategic objectives.

This analysis provides a detailed, data-driven comparison across six critical dimensions: labor costs, corporate taxation, government incentives, talent and workforce, infrastructure, and FDI regulatory frameworks. All figures are current as of March 2026.

Labor Cost Comparison: India Holds the Edge

Minimum Wages and Manufacturing Labor Rates

India consistently offers lower manufacturing labor costs than Vietnam, though the gap has narrowed in recent years. Here is how the two countries compare in 2026:

India's labor cost advantage is most pronounced at the entry-level and semi-skilled worker tiers. Vietnam's minimum wage increased by 7.2% effective January 1, 2026, under Decree No. 293/2025/ND-CP, bringing Region 1 (Hanoi, Ho Chi Minh City) wages to VND 5.31 million per month. India's minimum wages vary by state but remain lower in most manufacturing-heavy states like Gujarat, Tamil Nadu, and Maharashtra.

Labor Productivity and Workforce Scale

India's working-age population of approximately 900 million dwarfs Vietnam's 55 million manufacturing-eligible workforce. This scale advantage matters for labor-intensive industries where rapid workforce ramp-up is essential. India produces over 1.5 million engineering graduates annually, compared to Vietnam's approximately 100,000.

However, Vietnam scores higher on labor productivity per worker in certain sectors, particularly electronics assembly and textiles, where the workforce has accumulated decades of experience with major multinationals like Samsung, Intel, and Foxconn. Vietnam's labor force participation rate exceeds 75%, among the highest in Southeast Asia.

Corporate Tax Rates: India's Concessional Manufacturing Regime

India offered one of the most aggressive corporate tax incentives for new manufacturers globally. Under Section 115BAB, eligible new manufacturing companies paid an effective tax rate of just 17.16% (15% base + 10% surcharge + 4% cess), with no Minimum Alternate Tax (MAT) obligation. Important: the 115BAB window has closed — it required eligible companies to commence manufacturing on or before March 31, 2024, and has not been extended. Companies setting up manufacturing in India now cannot access the 15% rate and instead pay 25.17% under Section 115BAA (22% base + 10% surcharge + 4% cess), still without MAT. India has signalled industry demand to revive a 115BAB-style rate, but as of 2026 no replacement has been legislated.

A critical development in Vietnam is the new Corporate Income Tax law (Law No. 67/2025/QH15), effective October 1, 2025. This law introduced tiered rates for SMEs (15% for annual revenue under VND 3 billion; 17% for revenue up to VND 50 billion) and a 10% preferential rate for high-tech sectors like semiconductor production, AI, and automobile manufacturing for up to 15 years.

However, Vietnam has also implemented the OECD Pillar Two global minimum tax of 15%, which reduces the effective benefit of deep tax holidays for large multinationals with consolidated revenue exceeding EUR 750 million. India is still deliberating on Pillar Two implementation, giving it a temporary advantage for large-scale investors seeking the lowest effective rate.

Government Incentives: PLI vs Vietnam's FDI Framework

India's Production Linked Incentive (PLI) Scheme

India's PLI scheme covers 14 sectors with a total outlay of INR 1.97 lakh crore (over $26 billion). As of September 2025, the scheme has attracted over INR 2 lakh crore in actual investment and generated over 12.6 lakh direct and indirect jobs. Key incentive parameters include:

• Incentive rate: 4–6% of incremental sales over a 5-year period
• Eligible sectors: Electronics, pharmaceuticals, textiles, automobiles, telecom, food processing, solar PV, advanced chemistry cells, specialty steel, white goods, drones, and medical devices
• Eligibility: Both domestic and foreign companies; MSMEs need minimum INR 100 million investment, larger companies need INR 1 billion
• Budget 2025–26 highlights: Electronics allocation increased from INR 5,777 crore to INR 9,000 crore; automobiles from INR 347 crore to INR 2,819 crore; textiles from INR 45 crore to INR 1,148 crore

Additionally, the government approved a INR 22,919 crore PLI scheme for non-semiconductor electronics components in March 2025, targeting PCBs, display modules, camera modules, lithium-ion cells, and passive components.

Vietnam's FDI Incentive Framework

Vietnam's incentive structure operates through a combination of tax holidays, land lease exemptions, and import duty waivers. Key features include:

• Tax holidays: 2–4 years of CIT exemption followed by 50% reduction for 4–9 years for qualifying projects
• Industrial zone benefits: Note that under the new CIT law effective October 2025, new projects in industrial zones no longer automatically qualify for location-based tax incentives. Existing projects retain their benefits until expiration
• Import duty exemptions: Duty-free import of machinery, raw materials, and components for export-oriented manufacturing
• Land lease reductions: Up to 15 years of reduced land lease fees in prioritized zones

India's Additional Incentive Layers

India offers multiple stacking incentive layers beyond PLI:

• SEZ benefits: 100% income tax exemption on export income for 5 years, 50% for next 5 years, duty-free imports, and single-window clearance
• State-level incentives: Capital subsidies (15–25% of fixed investment), stamp duty exemptions, power tariff subsidies for 5–7 years, and ready-built factory shells
• BHAVYA scheme: INR 33,660 crore allocated for developing 100 new industrial parks, with government support of up to INR 1 crore per acre

Talent and Workforce: India's Scale vs Vietnam's Discipline

Engineering and Technical Talent

India produces approximately 1.5 million engineering graduates annually from over 3,500 engineering colleges. This talent pipeline supports complex manufacturing operations requiring R&D, quality engineering, and process optimization capabilities. India's IT services industry has also created a deep pool of data analytics, IoT, and automation talent that increasingly supports smart manufacturing initiatives.

Vietnam is rapidly scaling its technical education pipeline, but the current output is significantly smaller. The government targets 50,000–100,000 semiconductor engineers by 2030, up from approximately 15,000 today. For general manufacturing, Vietnam produces about 100,000 STEM graduates annually.

Management and Middle-Management Talent

India has a significant advantage in English-speaking management talent. Over 125 million Indians speak English as a second language, compared to approximately 5–10 million Vietnamese. This matters for multinational manufacturers who need local leadership teams that can interface with global headquarters.

India's established automotive, pharmaceutical, and IT manufacturing sectors have produced a deep bench of experienced factory managers, quality heads, and supply chain professionals with 15–20 years of experience working for multinationals like Bosch, Siemens, Toyota, and Samsung.

Workforce Challenges

India faces challenges with workforce attrition in manufacturing (15–25% annually in some regions), particularly near IT hubs where factory workers are drawn to higher-paying service sector jobs. Vietnam experiences lower attrition (8–15%) but faces tighter labor markets in northern industrial zones around Hanoi and Hai Phong.

Training and Skill Development Infrastructure

India has invested heavily in industrial training infrastructure. The government operates over 15,000 Industrial Training Institutes (ITIs) and 33 National Skill Training Institutes producing certified technicians in machining, welding, electrical, electronics, and other manufacturing trades. Many states offer customized skill development programs in partnership with foreign manufacturers — for example, Tamil Nadu's SIPCOT training centers and Gujarat's iCreate campus near Ahmedabad.

Vietnam's vocational training system has improved significantly under German-modeled dual training programs. However, the total annual output of trained manufacturing technicians is approximately one-fifth of India's. Vietnam compensates with high workforce adaptability and lower training-to-deployment timelines, particularly in assembly-line operations where workers achieve productivity benchmarks faster than their Indian counterparts.

For manufacturers requiring large volumes of skilled workers quickly, India's broader training infrastructure offers more options. For smaller operations prioritizing workforce quality over quantity, Vietnam's focused training programs may be sufficient.

Infrastructure: Vietnam's Current Edge, India's Rapid Investment

Industrial Parks and Zones

Vietnam has a mature and well-organized industrial park ecosystem. The country operates over 400 industrial parks with well-developed infrastructure including ready-built factories, water treatment, and reliable power. By 2030, Vietnam plans to expand to 600 industrial parks covering 181,000 hectares.

India has mapped 4,523 industrial parks with over 6.45 lakh plots, of which 1.25 lakh remain vacant. However, infrastructure quality varies significantly by state. India's 265+ formally notified SEZs handle approximately 30–35% of national export volume. The PM Gati Shakti initiative and the National Industrial Corridor Development Programme (12 nodes across states) are addressing historical infrastructure gaps.

Logistics and Connectivity

Vietnam's proximity to China's supplier ecosystem is a decisive advantage for electronics manufacturers who need to source components rapidly. Products manufactured in Vietnam reach East Asian markets in 3–7 days, compared to 10–15 days from India.

India's infrastructure investment is accelerating. New port developments at Vadhavan (Maharashtra) and Vizhinjam (Kerala), Dedicated Freight Corridors, and the Delhi-Mumbai Industrial Corridor (DMIC) will progressively ease logistics bottlenecks over the next 3–5 years.

Domestic Market Access as Infrastructure

One often-overlooked infrastructure advantage for India is the domestic market itself. India's consumer market of 1.4 billion people — with a rapidly expanding middle class projected to exceed 500 million by 2030 — means manufacturers can serve the domestic market and export from the same facility. This dual-market strategy reduces logistics risk: if export demand fluctuates, domestic absorption provides a buffer.

Vietnam's domestic market of approximately 100 million consumers is significantly smaller. Manufacturers in Vietnam are predominantly export-oriented, which makes them more vulnerable to trade policy changes, tariff disputes, and shipping disruptions. Companies like Samsung produce over $60 billion in electronics from Vietnam annually, but the vast majority is exported to the US, EU, and other markets.

For manufacturers who value the option of selling locally while exporting, India's domestic market scale is a form of infrastructure that Vietnam cannot replicate.

Land Acquisition and Factory Setup

Vietnam's industrial zone model provides a streamlined land acquisition experience. Foreign manufacturers can lease ready-built factory shells or serviced land parcels within established zones, typically completing tenancy agreements within 2–4 weeks. Industrial zone operators handle land-use rights, environmental permits, and utility connections as part of their service package.

In India, land acquisition remains more complex. Securing industrial land can take 3–12 months depending on the state and whether the manufacturer uses a government industrial park, SEZ, or private land. States like Gujarat, Tamil Nadu, and Maharashtra have established single-window clearance systems that significantly reduce timelines to 4–8 weeks for pre-approved industrial zones.

The Indian government's plug-and-play industrial park initiative, with INR 2,500 crore allocated in the 2025-26 budget, aims to close this gap by providing factory-ready parcels with pre-approved environmental clearances, connected utilities, and approach roads. The BHAVYA scheme targeting 100 new industrial parks with government support of INR 1 crore per acre will further expand the available inventory of manufacturing-ready land.

Supply Chain Ecosystem Depth

China's integrated supply chain — where every component for electronics can be sourced within a 50-km radius — has no equivalent in either India or Vietnam. However, Vietnam's northern industrial corridors (Hai Phong, Bac Ninh, Thai Nguyen) have developed meaningful component supplier clusters for electronics and auto parts, leveraging proximity to southern China's supply base.

India's supplier ecosystem is deeper in automotive (Pune, Chennai, Gurugram), pharmaceuticals (Hyderabad, Ahmedabad, Baddi), and textiles (Surat, Tiruppur, Ludhiana) but thinner in electronics components. Companies entering India for electronics manufacturing should expect to import 40–60% of components initially, with local sourcing increasing over 2–3 years as the PLI-supported component ecosystem develops.

Trade Agreements and Market Access

Vietnam holds a significant advantage in free trade agreement (FTA) coverage. Its FTA network includes:

• CPTPP: Comprehensive and Progressive Agreement for Trans-Pacific Partnership — tariff-free access to 11 markets including Japan, Canada, Australia, and Mexico
• EVFTA: EU-Vietnam Free Trade Agreement — progressive elimination of 99% of customs duties between Vietnam and the EU
• RCEP: Regional Comprehensive Economic Partnership — preferential access to China, Japan, South Korea, Australia, and ASEAN
• Bilateral FTAs: Agreements with South Korea, Japan, Chile, and the Eurasian Economic Union

India's FTA coverage is more limited but expanding. Key agreements include ASEAN-India FTA (with coverage gaps), bilateral agreements with Japan, South Korea, Singapore, and EFTA countries. India is actively negotiating FTAs with the UK, EU, and Australia, which would significantly improve tariff access for Indian manufactured goods in these markets.

For manufacturers exporting to markets covered by Vietnam's FTAs, the tariff savings can be substantial — often 5–15% of product value — making Vietnam the better choice purely on trade agreement grounds. However, for companies primarily targeting the Indian domestic market, the Middle East, or Africa, India's own trade agreements and geographic proximity provide sufficient coverage.

FDI Regulatory Framework: How to Set Up Manufacturing

India's FDI Routes

Over 90% of manufacturing sectors in India permit 100% FDI through the automatic route, meaning no government approval is required. The typical setup process for a wholly owned subsidiary involves:

1. Incorporate a Private Limited Company via the SPICe+ portal (2–3 weeks)
2. File FC-GPR with RBI within 30 days of receiving FDI
3. Obtain IEC (Import Export Code) for importing machinery and raw materials
4. Register for GST before commencing operations
5. Obtain factory license, pollution control board consent, and fire safety clearance

Timeline: 8–12 weeks from incorporation to operational readiness (excluding factory construction). For restricted sectors like defence (74% cap under automatic route) or telecom (49% automatic, government route beyond), the government approval route adds 4–8 weeks.

Vietnam's FDI Framework

Vietnam allows 100% foreign ownership in most manufacturing sectors. The setup process involves:

1. Obtain an Investment Registration Certificate (IRC) from the Department of Planning and Investment
2. Obtain an Enterprise Registration Certificate (ERC)
3. Register for tax, open a bank account, and obtain sector-specific licenses
4. Industrial zone tenancy agreement or land lease

Timeline: 4–8 weeks for standard manufacturing operations. Vietnam's one-stop-shop administrative services in industrial zones streamline the process.

Compliance Burden Comparison

India's ongoing compliance requirements are more extensive than Vietnam's. Foreign-owned manufacturing companies in India must manage multiple compliance calendars including FLA returns, transfer pricing documentation, corporate tax filings, monthly/quarterly GST returns, and sector-specific regulatory filings. Engaging a professional compliance partner is strongly recommended.

Vietnam's compliance framework is simpler, with quarterly CIT declarations, monthly VAT returns, and annual financial statement filings. However, the regulatory environment can be less predictable, with policy changes sometimes implemented with limited advance notice.

Sector-by-Sector Verdict: Where Each Country Wins

For a deeper dive into specific sector comparisons, see our analyses of pharma manufacturing and semiconductor assembly between India and Vietnam.

Making the Decision: A Framework for Manufacturers

The choice between India and Vietnam is rarely binary. Many multinationals operate in both countries, allocating different product lines based on comparative advantages. Here is a decision framework:

Choose India when:

• Your primary market is India itself (1.4 billion consumers) or the Middle East/Africa
• You need access to a large engineering talent pool for complex manufacturing
• You want a competitive, permanent concessional corporate tax rate (25.17% under Section 115BAA, with no time limit or MAT)
• Your sector has PLI incentives that provide 4–6% of incremental sales
• You need English-speaking management teams

Choose Vietnam when:

• Your target markets are East Asia, the US, or ASEAN
• You need proximity to Chinese component suppliers
• You require plug-and-play industrial park infrastructure immediately
• Your products benefit from Vietnam's FTA network (CPTPP, EVFTA, RCEP)
• You need faster shipping times to US and East Asian markets

Many global manufacturers — including Apple, Samsung, Bosch, and Toyota — operate in both India and Vietnam, allocating high-value or IP-intensive operations to India (leveraging its engineering talent and domestic market) while placing assembly-oriented or East Asia-facing production in Vietnam (leveraging its logistics and supplier proximity). This dual-country approach provides both supply chain resilience and market access optimization.

For guidance on structuring your India manufacturing entry, explore our FDI advisory services or review our entity structure comparison guides. For country-specific guidance, consult our registration guides covering 76 countries.

Key Takeaways

• Labor costs favor India: Manufacturing labor ranges $2.00–3.50/hour in India vs $2.80–4.00/hour in Vietnam, with India offering a vastly larger workforce pool of 900 million working-age adults.
• India offers a permanent concessional rate: New manufacturers now pay 25.17% under Section 115BAA with no time limit or MAT. The deeper 17.16% rate under Section 115BAB closed to companies commencing manufacturing after March 31, 2024 and has not been extended.
• PLI incentives are unmatched: India's INR 1.97 lakh crore PLI scheme across 14 sectors provides 4–6% of incremental sales, with over INR 2 lakh crore already invested.
• Vietnam wins on infrastructure readiness: Over 400 well-developed industrial parks with plug-and-play facilities, shorter shipping times to key markets, and proximity to China's supplier ecosystem.
• India wins on domestic market access: At 1.4 billion consumers, India's domestic market is approximately 14 times the size of Vietnam's, making it compelling for manufacturers who want to sell where they produce.