India's Manufacturing Bet: PLI Schemes, China+1, and the Race to Capture Global Supply Chains
- ▸India's PLI schemes across 14 sectors have committed Rs 1.97 lakh crore in incentives, attracting over Rs 4 lakh crore in investment and generating exports exceeding Rs 10 lakh crore cumulatively through 2025-26.
- ▸The China+1 strategy — where multinationals diversify manufacturing away from China — is creating genuine investment opportunities for India, Vietnam, Mexico, and Indonesia, with India capturing a growing share of electronics and pharmaceutical exports.
- ▸Structural challenges including logistics costs, land acquisition complexity, labour regulation rigidity, and component import dependency on China remain significant bottlenecks for India's manufacturing ambitions.
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.
The PLI scheme is perhaps the most ambitious industrial policy intervention in India since the Licence Raj era — but in reverse. Rather than restricting production, it incentivises it, paying companies cash rewards linked to incremental output above a baseline. The 14 PLI sectors span mobile phones, pharmaceuticals, textiles, food processing, automobiles, solar modules, white goods, specialty steel, and more. The headline numbers are significant: PLI-linked production has crossed Rs 10 lakh crore, with exports from PLI sectors growing at 30%+ annually in key categories. Apple now manufactures approximately 14% of its global iPhone output in India — a figure that would have seemed implausible five years ago. The challenge is translating this momentum into deep, diversified industrial capability rather than isolated assembly nodes dependent on Chinese components.
Primary Sources
Cite This Article
Khagan Rao. (2026, June 28). India's Manufacturing Bet: PLI Schemes, China+1, and the Race to Capture Global Supply Chains. EconoLens. https://econolens.co.in/news/india-manufacturing-pli-china-plus-one-2026
Khagan Rao is an economist and analyst specialising in global monetary policy, fiscal frameworks, and international trade. He tracks publications from the IMF, World Bank, BIS, and RBI to deliver accessible, data-driven analysis for a global audience.