India vs Vietnam for Manufacturing

By Dev Rao | Updated March 2026

India and Vietnam are the two leading China+1 destinations for global manufacturers. Vietnam attracted USD 37 billion in FDI in 2023 (a 32% year-over-year increase) and has 16 active free trade agreements including CPTPP, EVFTA, and RCEP — giving manufacturers duty-free access to markets covering 60%+ of global GDP. India offers a 1.4-billion-person domestic market, manufacturing labor costs of approximately USD 2-3 per hour, and the world's largest production-linked incentive program at INR 1.97 lakh crore (USD 26 billion) across 14 sectors.

The verdict: Vietnam is the better pure export platform; India is the better play if you also want to sell into the Indian domestic market. Vietnam's FTA network, shorter supply chain proximity to China, and streamlined FDI process make it ideal for export-oriented electronics and textiles. India's massive domestic consumption, PLI incentives, and improving infrastructure make it the right choice for companies targeting the Indian consumer while building export capacity.

This comparison covers labor costs, tax incentives, FDI processes, infrastructure, trade agreements, special economic zones, and the practical considerations that determine which country wins for your specific manufacturing use case.

Quick Comparison Table

Labor Costs and Workforce

Labor costs are comparable between India and Vietnam at the headline level, but the composition differs significantly.

India

• Average manufacturing wage: USD 2-3/hour in the organized sector; as low as USD 1-1.50/hour in informal manufacturing
• Minimum wage: Varies by state — from INR 178/day (Bihar) to INR 780/day (Delhi) for unskilled workers
• Workforce size: 500+ million working-age population; ~50 million in organized manufacturing
• Skill challenge: Wide variation in skill levels; companies often invest heavily in in-house training; automation rate under 30%
• Labor laws: Four new Labour Codes (2019-2020) consolidate 29 legacy laws but implementation varies by state
• Social security costs: EPF (12% employer + 12% employee), ESI (3.25% employer + 0.75% employee), gratuity — adding 17-20% to base labor cost

Vietnam

• Average manufacturing wage: VND 7.7-8.4 million/month (USD 294-347) for factory workers; electronics and high-tech at the higher end
• Minimum wage (2026): VND 3.45 million/month (Region 4/rural) to VND 4.96 million/month (Region 1/Hanoi, HCMC) — a 7.2% increase from 2025 under Decree No. 293/2025/ND-CP
• Workforce size: 55 million working-age; ~18 million in manufacturing
• Skill advantage: Strong in electronics assembly and textiles; Samsung and Apple supplier ecosystems have trained a skilled manufacturing workforce
• Social insurance costs: Employer contributes 21.5% (social insurance 17.5%, health insurance 3%, unemployment insurance 1%) — adding ~22% to base labor cost

India's labor cost advantage is approximately 15-25% lower than Vietnam at comparable skill levels. However, Vietnam's workforce productivity in electronics assembly is higher due to years of Samsung, LG, and Foxconn training investments.

Tax Incentives and PLI Scheme

India's PLI Scheme

India's Production Linked Incentive (PLI) scheme is the world's largest sector-specific manufacturing incentive program with a total outlay of INR 1.97 lakh crore (USD 26 billion) across 14 sectors:

• Electronics and IT Hardware: INR 9,000 crore allocation in 2025-26 (up from INR 5,777 crore in 2024-25)
• Automobiles and Auto Components: INR 2,818.85 crore (up from INR 346.87 crore)
• Pharmaceuticals and Medical Devices: Incentives for domestic manufacturing of Key Starting Materials (KSMs) and APIs
• Other covered sectors: Textiles, food processing, specialty steel, solar PV modules, white goods, telecom equipment, drones

As of mid-2025, 806 applications have been approved, realized investment has reached INR 1.76 lakh crore, sales by PLI participants exceeded INR 16.5 lakh crore, and cumulative incentive disbursements totaled INR 21,534 crore (USD 2.4 billion). PLI has generated over 12 lakh direct and indirect jobs.

India's Section 115BAB offered a 15% concessional corporate tax (effective ~17.16%) for new manufacturing companies incorporated on or after October 1, 2019 — but the scheme has closed to new entrants: a company had to commence manufacturing on or before 31 March 2024, and the window was not extended. Companies that began manufacturing after that date fall under Section 115BAA's 22% rate (effective ~25.17%) instead.

Vietnam's Tax Incentives

Under Vietnam's new Corporate Income Tax Law (effective October 1, 2025), manufacturing incentives include:

• Preferential CIT rate: 10% for up to 15 years for projects in AI, semiconductors, renewable energy, R&D, and software
• Tax holidays: 2-4 years full exemption + 4-9 years at 50% reduction for qualifying FDI projects in economic zones, high-tech parks, and disadvantaged areas
• Import duty exemptions: On essential fixed assets and raw materials not available domestically
• Land rental relief: Reduced or exempt land rental fees in prioritized zones

Important change from October 2025: new projects in regular industrial zones no longer automatically qualify for location-based tax incentives. Only special economic zones, high-tech parks, and centralized IT zones designated by the Prime Minister continue to provide automatic benefits. The investment threshold for large-scale manufacturing tax incentives has been raised from VND 6,000 billion to VND 12,000 billion (≈USD 475 million).

Trade Agreements and Market Access

This is Vietnam's strongest competitive advantage over India for export-oriented manufacturing.

For an electronics manufacturer exporting to Europe, Vietnam's EVFTA eliminates tariffs that would cost 3-14% on Indian exports. For exports to Canada, CPTPP gives Vietnam duty-free access while India faces MFN tariffs. This FTA advantage often outweighs India's lower labor costs for export-focused manufacturers.

Infrastructure and Supply Chain

Vietnam's Advantages

• Proximity to China: Shares a 1,450 km border; integrated into southern China's electronics supply chain; 2-3 day trucking from Shenzhen to Hanoi industrial parks
• Industrial parks: 400+ industrial zones with high occupancy rates (north: 80%+, south: 89-92%); key hubs include Bac Ninh (Samsung, Apple suppliers), Hai Phong (LG, Pegatron), and Binh Duong (VSIP)
• Power reliability: 99% electricity access nationwide; however, northern Vietnam experienced power shortages in summer 2023, raising reliability concerns for energy-intensive manufacturing
• Port infrastructure: Hai Phong (north) and Cat Lai/Cai Mep (south) handle large container volumes; transit times to US West Coast: 14-18 days

India's Advantages

• Domestic market: Manufacturing for India's 1.4 billion consumers eliminates export logistics — the largest advantage India has over Vietnam
• 270+ operational SEZs: Special Economic Zones offer tax benefits under the SEZ Act 2005 (100% IT exemption for 5 years, 50% for next 5)
• State industrial policies: Gujarat, Tamil Nadu, Karnataka, Maharashtra offer additional incentives including capital subsidies, stamp duty exemptions, and power tariff subsidies
• Improving infrastructure: National Infrastructure Pipeline (INR 111 lakh crore), dedicated freight corridors (Eastern and Western), and Sagarmala port modernization; but logistics costs remain 13-14% of GDP versus 8-9% in Vietnam

Which Should You Choose?

Choose India if:

• You want to sell into the Indian domestic market — 1.4 billion consumers with a growing middle class spending USD 2+ trillion annually
• Your sector qualifies for PLI incentives — electronics, auto components, pharmaceuticals, textiles, solar, and 8 other sectors receive 4-6% of incremental sales as incentive over 5 years
• You can access existing incentives — note that the 15% concessional manufacturing rate under Section 115BAB closed to units commencing production after 31 March 2024, so new entrants now use Section 115BAA's 22% rate (effective ~25.17%), still competitive with Vietnam's 20% standard rate when paired with PLI
• You are building a large-scale operation (1,000+ employees) where India's labor cost advantage compounds — 15-25% lower loaded costs than Vietnam
• Your supply chain is not dependent on proximity to China — India works for standalone manufacturing or for components sourced from India itself

Choose Vietnam if:

• You are an export-oriented manufacturer targeting the EU, Japan, Canada, Australia, or other CPTPP/EVFTA/RCEP markets — Vietnam's FTA network eliminates 3-14% tariffs that Indian exports face
• You need proximity to China's supply chain — component sourcing from Shenzhen/Guangzhou is 2-3 days by truck versus 2-3 weeks by sea from India
• You are in electronics assembly — Vietnam's workforce has been trained by Samsung, LG, and Foxconn over 15+ years; Bac Ninh and Thai Nguyen are mature electronics clusters
• You want a faster, simpler FDI process — Vietnam's Investment Registration Certificate (IRC) + Enterprise Registration Certificate (ERC) process takes 15-25 days with fewer approvals than India
• You are building a facility under USD 475 million — Vietnam's tax holidays (2-4 years exempt + 4-9 years at 50% reduction) can be more valuable than India's flat 22% rate under Section 115BAA for smaller operations (the 15% Section 115BAB rate having closed to new units after 31 March 2024)

Common Mistakes

• Choosing Vietnam for India market access: Vietnam has no FTA with India that eliminates tariffs on manufactured goods. If your end market is Indian consumers, manufacturing in Vietnam and exporting to India means paying India's MFN tariffs (often 10-20% on finished goods). An Indian subsidiary eliminates this cost entirely.
• Ignoring Vietnam's rising land costs: Industrial land in northern Vietnam has surged 30-40% in premium locations like Bac Ninh and Hai Phong due to Apple and Samsung supplier demand. Southern industrial parks now cost USD 177-200/m² for the lease term. India's Tier 2 cities (Pune, Ahmedabad, Coimbatore) offer industrial land at USD 30-60/m² — a 3-4x cost advantage.
• Assuming India's PLI scheme is automatic: PLI incentives require application, approval, and meeting incremental production/investment thresholds. The 806 approved applications (as of mid-2025) represent a subset of total applicants. Incentives are disbursed only after verified incremental sales — not on projected output.
• Overlooking Vietnam's new CIT law changes (October 2025): Regular industrial zones no longer automatically qualify for location-based tax incentives. Only projects in special economic zones, high-tech parks, or designated centralized IT zones retain automatic benefits. The investment threshold for large-scale manufacturing incentives has doubled from VND 6,000 billion to VND 12,000 billion (≈USD 475 million).
• Not accounting for India's logistics cost disadvantage: India's logistics costs are 13-14% of GDP versus 8-9% for Vietnam. For export-oriented manufacturing, this 4-5 percentage point gap can erase India's labor cost advantage. India's dedicated freight corridors and Sagarmala port program are improving this, but the gap persists in 2026.

Practical Example

Horizon Electronics Inc., a US-based consumer electronics company, wants to manufacture Bluetooth speakers and earbuds for global markets. Annual production target: 2 million units. Estimated factory investment: USD 8 million. Target markets: USA (40%), EU (30%), India (20%), rest of Asia (10%).

Path A — India (Tamil Nadu): Horizon sets up an Indian Private Limited Company in the SIPCOT industrial park near Chennai. Industrial land: USD 40/m² (2,000 m² = USD 80,000). Labor cost: 200 workers at INR 18,000/month loaded = INR 3.6 crore/year (USD 432,000). Electricity: USD 0.09/kWh. Corporate tax: 22% under Section 115BAA (effective 25.17%), as the 15% Section 115BAB window closed to units commencing production after 31 March 2024. PLI eligibility: Yes (electronics hardware — 4-6% incentive on incremental sales). Export tariffs: US exports face MFN tariffs; EU exports face 3-14% tariffs (no FTA). Indian domestic sales (20%): zero export logistics. Total year-1 cost structure advantage: PLI incentive of ~USD 150,000 + domestic market access. Total year-1 tariff disadvantage: ~USD 200,000 on EU/US exports versus Vietnam.

Path B — Vietnam (Bac Ninh): Horizon sets up a Vietnamese LLC in an industrial park near Bac Ninh. Industrial land lease: USD 145/m² for lease term (2,000 m² = USD 290,000 — 3.6x India). Labor cost: 200 workers at VND 9 million/month loaded = VND 21.6 billion/year (USD 825,000 — 91% higher than India due to higher base wages and social insurance). Electricity: USD 0.08/kWh. Corporate tax: 20% standard (or 10% if qualifying for high-tech incentives). Tax holiday: 4 years exempt + 9 years at 50% if in a designated high-tech park. Export tariffs: EU exports duty-free under EVFTA; CPTPP markets duty-free; US exports face MFN tariffs (same as India). Proximity to component suppliers in Shenzhen: 2-day trucking. Indian sales (20%): must pay India's import duties (10-20%).

Best structure for Horizon: Vietnam factory for EU and CPTPP exports (70% of volume), leveraging EVFTA and CPTPP tariff elimination. Indian entity for domestic Indian sales (20%) and to claim PLI incentives. Estimated annual savings from dual structure: USD 250,000-350,000 versus single-country setup.

Key Takeaways

• Vietnam's 16 FTAs (CPTPP, EVFTA, RCEP) provide duty-free export access to 60%+ of global GDP — India's 13 FTAs cover only ~25%, and India opted out of RCEP.
• India's PLI scheme (INR 1.97 lakh crore across 14 sectors) is among the strongest manufacturing incentives in Asia for companies willing to produce and sell domestically; the 15% Section 115BAB rate is no longer open to new units (production had to commence by 31 March 2024), so new entrants use the 22% rate under Section 115BAA.
• India's manufacturing labor costs are 15-25% lower than Vietnam at comparable skill levels, but Vietnam's workforce has higher productivity in electronics assembly due to 15+ years of Samsung/Apple ecosystem training.
• Vietnam's proximity to China's supply chain (2-3 day trucking from Shenzhen) is a decisive advantage for electronics and components; India requires 2-3 weeks by sea for the same sourcing.
• Industrial land in Vietnam's premium zones now costs 3-4x more than India's Tier 2 industrial cities (USD 145-200/m² vs USD 30-60/m²), narrowing Vietnam's historical cost advantage.
• For companies targeting both Indian consumers and global export markets, a dual India-Vietnam manufacturing structure maximizes tariff savings, PLI incentives, and supply chain efficiency.

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