India's Manufacturing Bet: PLI Schemes, China+1, and the Race to Capture Global Supply Chains

Global supply chain geography is being redrawn. The pandemic exposed the danger of hyper-concentration in Chinese manufacturing; the US-China tech and trade war added geopolitical impetus; and rising Chinese labour costs reduced the cost differential that made China the obvious choice. The result is a genuine diversification wave — and India has positioned itself to capture a meaningful share.

What Are PLI Schemes?

Production Linked Incentives are government cash transfers to companies based on incremental production above a baseline. If a company commits to a minimum investment and then exceeds its baseline production by, say, Rs 1,000 crore, the government pays it 4-6% of that incremental output. This design is production-linked rather than investment-linked, reducing the risk of companies claiming subsidies for capacity that never produces. India has deployed PLI across 14 sectors from mobile phones and semiconductors to food processing and drone manufacturing.

The China+1 Opportunity

Multinationals are not abandoning China — they are building parallel capacity elsewhere. Apple has moved iPhone assembly to India (Foxconn and Tata); Samsung makes smartphones and displays; Foxconn, Pegatron, and Wistron have all committed to Indian expansion. In pharmaceuticals, India was already the world's pharmacy for generics; the pandemic accelerated API (active pharmaceutical ingredient) localisation. The question is whether these represent deep integration into Indian supply chains or shallow final assembly that remains critically dependent on Chinese components.

Sector Performance: Where PLI Is Working

Mobile phones have been the PLI standout. India's smartphone exports crossed $15 billion in FY2025, up from under $500 million in FY2020 — a 30-fold increase in five years. Apple's India-made iPhones now reach 75+ countries. Pharmaceuticals have maintained India's position as a top-3 global generics exporter. The automobile PLI — covering advanced chemistry cell batteries and EVs — has attracted commitments from domestic OEMs and is beginning to build a domestic battery supply chain. Solar module manufacturing capacity has grown from near-zero to 50GW+ annually, though Chinese polysilicon and wafer dependence remains a vulnerability.

Where PLI Is Struggling

Textiles — one of the largest employment generators in any manufacturing economy — has underperformed PLI targets significantly, partly because the scheme's design favoured man-made fibres over cotton (India's comparative advantage) and partly because competitors in Bangladesh and Vietnam offer lower wages and better logistics. Semiconductors remain at early stage; the ISMC and Tata-Powerchlp projects are under construction but commercial production is years away. White goods (appliances) have attracted some investment but component localisation remains shallow.

The Logistics Gap

Manufacturing competitiveness is not just about factory costs — it is about the total landed cost at a customer's door. India's logistics costs as a share of GDP are estimated at 13-14%, versus 8% in China and 6-8% in OECD economies. Port turnaround times, multi-modal freight infrastructure, and last-mile connectivity remain weaker than China despite significant PM Gati Shakti improvements. Closing the logistics cost gap from 14% to 9% of GDP — the government's stated target — would add more to manufacturing competitiveness than any PLI incentive.

Value-Added vs Assembly: The Core Metric

The critical distinction in evaluating India's manufacturing progress is domestic value addition versus assembly. Apple iPhones assembled in India still contain screens, chips, camera modules, and most components sourced from China, South Korea, or Taiwan. India's domestic value addition in electronics exports is approximately 15-20% — better than five years ago but well short of the 40-50% value addition achievable in a mature electronics ecosystem. Reducing this import content requires building upstream component manufacturing — a multi-decade endeavour requiring consistent policy, skilled labour development, and R&D investment.

FDI Composition Analysis

India's FDI inflows hit $71 billion in FY2024 — significant but not exceptional relative to GDP. More important than the headline number is the composition: greenfield manufacturing FDI has grown faster than services FDI, but remains dominated by sectors with short payback periods and limited supply chain integration. The World Bank's manufacturing FDI database shows India's share of global manufacturing FDI rising from 2.1% (2019) to 4.3% (2024) — a meaningful gain but still below India's potential share given its scale and labour cost advantage.

Competitiveness Benchmarks

The World Bank Logistics Performance Index ranks India at 38th (2023), improved from 44th in 2018 but still below China (22nd), Vietnam (43rd improving fast), and Indonesia (61st). Unit labour cost comparisons are more favourable: Indian manufacturing wages of $2-3 per hour compare favourably to Chinese coastal wages of $6-8 per hour, though productivity differentials partially offset this advantage. The IMF estimates India's manufacturing share of GDP at 15.4% — below the aspirational 25% target. Closing this gap through PLI and infrastructure investment is achievable over 10-15 years but requires sustained policy consistency across election cycles.