India as an Emerging Manufacturing Hub: Factors Driving Growth

Posted by Written by Archana Rao Reading Time: 8 minutes

India’s manufacturing sector has witnessed major new investments in production facilities by leading multinational corporations like Siemens, GE, Philips, Samsung Electronics, PepsiCo, ABB, Micron, etc. India Briefing discusses the factors responsible for the growth of India’s manufacturing sector and its potential to become a China+1 hub.

India is pursuing multi-pronged strategies to attract foreign investment, such as inviting bids for frontier sectors like semiconductor manufacturing and extraction of critical minerals blocs, and offering industry-specific incentives and financial packages. India’s appeal is attributed to its geopolitical stability, trainable workforce, and lower labor costs compared to China.

In the last five years, India has seen a rise in foreign technical collaborations, particularly in sectors like mobile phones, electronics, and food processing, with the US, Germany, and Japan being major technology transfer partners. Also, during the COVID-19 pandemic, India demonstrated its manufacturing prowess by rapidly producing pharmaceuticals and vaccines, changing perceptions about its manufacturing capabilities.


Share of global manufacturing



United States








South Korea










Data Source: World Population Review

India now presents itself as a favorable destination for foreign companies due to streamlined regulatory processes, joint research and development opportunities, and capacity to manufacture and assemble high-quality products meeting international standards. As a result, major international companies are increasingly setting up in the country or exploring R&D partnerships.

India’s golden era of manufacturing

The current phase has been dubbed the “golden era” of India’s industrial boom by industry experts. Positive changes in the manufacturing sector, such as increased merger and acquisition activity, supportive government policies, expanded production capacity, and substantial investments from private equity and venture capital, are building a strong foundation for the nation’s long-term economic success.

  • India’s GDP growth is predicted to make the country a US$5 trillion economy by 2025.
  • The central government revised its capital expenditure on infrastructure development to INR 11,110 billion (US$133.3 billion) for FY2024-25, marking a 11.1 percent jump from the previous year’s capex of INR10,000 billion (US$119.97 billion).
  • Total FDI inflows in the country in FY 2023-24 were US$17.96 billion, and total FDI equity inflows stood at US$11.54 billion. Mauritius (26 percent), Singapore (23 percent), the USA (9 percent), the Netherlands (7 percent), and Japan (6 percent) emerged as the top five countries for FDI equity inflows into India in FY 2023-24.
  • India has over 42 trade agreements (including preferential agreements) with various countries and regions.
  • Corporate tax rates were slashed to 15 percent from 22 percent for new manufacturing units incorporated on or before from March 31, 2024.

The Secretary in the Department for Promotion of Industry and Internal Trade, Rajesh Kumar Singh, remains optimistic about India’s growth potential in the manufacturing space. He has noted that as many foreign investors and MNCs seek to diversify away from China, India hopes to draw at least US$100 billion in gross FDI annually.

Further, it is anticipated that India could export goods worth US$1 trillion by 2030 as production investments and domestic capacity expand. According to 2022-23 export data, India’s total exports stood at US$776 billion, of which US$450 billion came from manufactured goods.

  • According to estimates by the Federation of Indian Export Organizations (FIEO), India’s exports are expected to increase from US$770 billion in 2023-24 to US$900 billion in 2024-25 due to increased global demand.
  • In the aircraft manufacturing industry, Boeing is purportedly trying to establish a production facility and is apparently obtaining more of its supplies from India.
  • The largest manufacturer of wind turbines in the world, Vestas of Denmark, constructed two new plants in Sriperumbudur, India, in 2021.
  • In 2023, it was reported that the US$1.9 billion electric car manufacturer Tesla plans to source twice as many auto parts from the country.

Growth drivers

The surge in global demand for consumer goods and the impetus to reduce the over reliance on sourcing from China have boosted trade between India and other countries to unprecedented levels. Although China remains the world’s top production hub, India has made improvements in automation and worker training, which have reduced manufacturing costs, particularly for labor-intensive consumer products.


Monthly minimum wage (till 2023) in US dollars





















Sri Lanka






Data Source: ILO, Statista

India is seeing a boom in merger and acquisition (M&A) activity as well as capital expenditure. The automotive, electronics, and textile industries—all of which have attracted significant investment—have shown signs of promising expansion. According to a Deloitte report, inbound M&A deals in India saw significant growth in 2023, with their share increasing to 41 percent (totaling US$55 billion) from 27 percent in 2022. This growth was driven by strategic buyers, particularly from the Netherlands, the US, and Germany, who contributed 65 percent of the strategic inbound value. Key sectors attracting these investments included financial services, technology, media, telecommunications (TMT), and manufacturing, fueled by rising interest in FinTech, e-commerce, and auto components, alongside strong local demand and favorable government policies.

Industry leaders and economists expect India’s capital expenditure to remain high in FY25. Morgan Stanley notes that government spending and a rebound in private investment will sustain India’s capital expenditure cycle. The global investment bank estimates India’s investment ratio will increase from 34 percent of GDP in FY 2023-24 to 36 percent of GDP in FY 2026-27.

Indian entrepreneurs and start-ups are forming joint ventures (JV) abroad to enhance the export potential of their products made through foreign technical collaborations in favorable and demanding markets.

Similarly, Indian firms and export businesses are striking joint ventures at home to build or scale up local production, catering to both the rapidly growing Indian consumer market and top export destinations. An example is apparel manufacturer Shahi Exports, which has entered a JV with Taiwan-based Little King Global, a synthetic sportswear fabric manufacturer. Their proposed processing unit will be located in Shimoga, Karnataka.

Most recently, JWS struck a joint venture with MG Motor India—a wholly owned subsidiary of China’s SAIC Motor—to enter the electric vehicle ecosystem. Their JV has been approved by the antitrust regulator, the Competition Commission of India. SAIC Motor and JSW announced the JV in December last year, with the Indian group holding a 35 percent stake. Under the JV, MG Motor will expand its vehicle production capacity in Halol, Gujarat, to up to 300,000 vehicles annually, per the JSW company website.

To boost investments, respective Indian state governments compete through customized and flexible subsidies, preferential industrial policies, reduction in taxes, streamlining bureaucracy through single-window approvals, expanding financing options, among others. Meanwhile, the central government has implemented measures to ease liquidity issues for non-banking financial companies (NBFCs) and banks, pursued ease of doing business by reducing compliance burdens, liberalized FDI rules, and promoted manufacturing through public procurement orders, the Phased Manufacturing Programme (PMP), and Production Linked Incentives (PLI) schemes.

India holds key strengths in sectors like pharmaceuticals, chemicals, industrial machinery, electronics, automobiles, and textiles and is one of the top four destinations for American companies relocating from China.

India’s manufacturing sector positioning itself in the global arena

Earlier in 2024, the HSBC India Manufacturing PMI was revised lower to 58.8 in April 2024 from preliminary estimates and March’s final 59.1 compared to forecasts of 59.5. Regardless of the short spikes, India-based firms have experienced a sharp upturn in new business intakes, with the pace of expansion being the second strongest since 2021.

Manufacturing PMI: Top Performing Countries in Asia




Year reference









Saudi Arabia




United Arab Emirates
























Hong Kong




Source: Trading Economics; Note: * The latest PMI data is for April 2024 except for Mongolia, which is for Q2 2023.

HSBC also notes that domestic companies have scaled up their production, whereas input stocks were lifted to one of the steepest in over 19 years. To meet rising demand from across the globe, manufacturers in India have hired more staff at the beginning of the first fiscal quarter of FY 2024-25 (April). Job creation, though moderate, was the fastest since September 2023.

Indian manufacturers anticipate increased output in 2025, with business confidence rising, fueled by expectations of sustained demand.

Pivot to smart manufacturing

Low labor costs used to be one of the main benefits of Indian manufacturing. However, regular low-skill jobs in Western nations are getting automated, while wages in India are progressively growing. It is anticipated that in certain developed economies, technology-driven reshoring and localization will be the prevailing trends. Further, the Indian manufacturing sector is facing stiff competition from developing economies with lower labor costs, such as Vietnam, as well as wealthy industrial nations like China and South Korea.

Higher cost markets are taking advantage of cutting-edge technologies like blockchain, 3D printing, IoT, cloud computing, and artificial intelligence (AI) to lower costs across the production process and increase operational efficiencies in the long-term.

As per the “State of Smart Manufacturing Report” published by Rockwell Automation, India leads the world in terms of manufacturing businesses investing in technology.

The majority of manufacturers concur that digitalization can be applied to every stage of a company’s lifecycle, including idea and design, engineering, sourcing, procurement, supply chain logistics, warehousing, customer experience, strategic functions, and governance. Digitalizing operations can increase efficiency, quality, safety and transparency. It can also reduce costs, timelines, and errors. 

In India, several leading companies, such as Larsen & Toubro Ltd., ABB India Ltd., Siemens Ltd., Rockwell Automation India Pvt. Ltd., Honeywell Automation India Ltd., Schneider Electric India Pvt. Ltd., Mitsubishi Electric India Pvt. Ltd., etc., have incorporated automation technology into their manufacturing units to increase production efficiency and quality.

India cashing on China+1 strategy

With India rising as a preferred option, the China Plus+1 approach entails businesses diversifying their manufacturing operations by building or growing production facilities in markets other than China. This strategy reduces the risks of becoming overly dependent on a single country while simultaneously tapping India’s growing customer base, skilled labor pool, and advantageous commercial incentives.

Comparison with key competitors

  • Market size: India’s current manufacturing size is that of leading countries such as Vietnam and Malaysia.
  • Ease of doing business: Vietnam (rank 70th) and Malaysia (rank 12th) generally have a simpler regulatory environment than India and are preferred by many foreign companies to set up business units. India, however, has been consistently working on improving the ease of doing business by streamlining and digitizing procedures.
  • Labor costs: South Asian countries such as Vietnam, Malaysia, Bangladesh, Indonesia, China, etc. offer more lucrative and competitive labor costs than India. 
  • Infrastructure: Countries like Vietnam are concentrating on developing their manufacturing and construction sectors in order to boost their economies. Its edge in excellent infrastructure contributed to the 6.28 percent growth in the manufacturing sector. Although India’s central government did announce an increase in infrastructure spending in February 2024, the country’s manufacturing infrastructure has not yet undergone any structural transformations.

Prominent manufacturing markets in the Asia-Pacific region

  • Vietnam

Vietnam has effectively increased its manufacturing sector’s GDP contribution from less than 17 percent in 2010 to more than 25 percent by 2022. The nation has scheduled numerous infrastructure improvements for air, sea, rail, and road transportation in its master plan for 2030. Vietnam’s ranking in the World Bank’s Ease of Doing Business increased from 78 in 2015 to 70 as of 2020. Two important industries for FDI investments in Vietnam are electronics and automobiles. 

  • Thailand

For nearly a decade, the manufacturing sector’s share of the nation’s GDP has remained stable at 26-30 percent. Thailand’s ranking on the ease of doing business increased from 26 in 2015 to 21 in 2020. The two major industries attracting 20 percent of all manufacturing FDI in 2022 were the electronics and electrical appliance sector and the automotive sector (approximately US$3.6 billion of a total US$18 billion FDI inflow). 

  • Malaysia

In Malaysia, manufacturing contributed 24 percent of the country’s GDP in 2022. From 18 in 2015 to 12 in 2020, Malaysia’s Ease of Doing Business ranking improved. The industrial sector, specifically electrical and electronics and category 8 transportation equipment, received 61.4 percent of the US$ 10.7 billion in FDI flows into the nation in 2021. The manufacturing FDI for 2022 (January to September) was approximately US$14 billion. 

  • India

The manufacturing sector’s contribution to India’s economy is still comparatively low, coming in at 15 percent in 2023 after having stagnated in the range of 13-17 percent for more than 20 years. But as of 2020, India’s Ease of Doing Business ranking has risen significantly to 63. The manufacturing industry brought in around US$21.34 billion in investment in FY22. In the coming years, FDI inflows into manufacturing are expected to rise as a result of the policy drive to improve the industry through the Production-Linked Incentives plan.


Manufacturing activity in India is increasing across a number of industries, including electronics, automotive, textiles, and pharmaceuticals, as more international firms and MNCs feel compelled to spread their geographic presence and diversify their upstream and downstream sourcing partners.

India is positioned as a critical node in the developing supply chain networks due to its advantageous geographic position, which includes access to important global markets and proximity to Southeast Asia.

However, in order for India to transform into a manufacturing powerhouse, a number of issues must be resolved, such as regulatory complexity, skill shortages, land acquisition and building norms, and logistics and infrastructure impediments. Here it must be noted that the central government is working with industry stakeholders to accelerate infrastructure modernization, streamline procedures, and make doing business easier.

(US$1 = INR83.30)

About Us

India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Readers may write to for support on doing business in India. For a complimentary subscription to India Briefing’s content products, please click here.

Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Dubai (UAE), Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Bangladesh, Italy, Germany, the United States, and Australia.