Manufacturing  Realignment in Asia: India’s Position in Global Supply Chains

Global supply chains are evolving through the confluence of two important impacts, each creating a new layer of uncertainty in developing and maintaining cross-border production networks. First, the imposition of American tariffs on China in 2018, imposed under Section 301 of the U.S. Trade Act, which was followed by subsequent rounds of Chinese retaliatory measures. This deteriorating relationship altered the landscape of global manufacturing and impacted major emerging economies like India. Second, the COVID-19 pandemic exposed vulnerabilities in geographically concentrated supply chains, prompting both developed and emerging nations to reassess their risks associated with a heavy reliance on single-country sourcing for trade and supply chain relationships. 

Much debate has arisen over whether the global economy is entering a period of deglobalization. This has spawned the term “China+1”, or a strategy where multinational firms maintain a substantial production presence in China while adding additional manufacturing locations in other countries. While the phrase has become widely used in business and policy discussions of this era, this strategy does not imply a wholesale exit from China supply chains. Rather, it reflects a risk-management approach where firms seek to diversify production processes geographically to reduce economic risks. 

Rather than deglobalization, much of the available empirical evidence suggests global markets are exhibiting a more nuanced pattern of supply chain involving a reconfiguration of the existing manufacturing geography. Effectively, production networks are being reorganized rather than systematically dismantled. Understanding this distinction is essential for properly evaluating the expected impact on the Indian economy.

For example, tariff changes may induce trade diversion, which essentially is a substitution effect wherein production shifts from one country to another in response to relative price changes. Such diversion can generate rapid export growth in alternative suppliers without fundamentally altering the value added derived from their domestic industrial structure. This contrasts with structural upgrading, which involves deeper transformations within an economy. Such upgrading raises the value added to a nation’s domestic production via shifts in technological capability or supplier networks. Assessing the difference is key.

Today, India is the fourth largest economy in the world (4.5 trillion US$), offers the world’s second largest labor force (600 million people), and engages in over 1.3 trillion US$ of global trade annually (World Bank, 2026). The Indian economy has experienced rising foreign investment inflows and rapid growth in certain export sectors. The Indian government has instituted an expansion of industrial policy initiatives such as the Production Linked Incentive (PLI) schemes (OECD, 2023a). The Indian population exhibits a comparatively young demographic profile, and a commitment to expanding infrastructure investments, all of which have strengthened perceptions that India may benefit from global supply-chain diversification. 

In all, it appears India is well-positioned to capitalize on this evolving world. Yet significant challenges remain that raise questions about the depth and sustainability of such a transformation, including overcoming logistics constraints and reducing existing regulatory complexity. This analysis conceptually examines the incidence of trade diversion within the Indian economy relative to structural upgrading to glean insights into this challenge. This requires examining the sectoral dynamics of the broader Indian economy to draw comparisons with competing exporters like China, Southeast Asia, and Mexico. Such insights can reveal the long-term sustainability of India’s manufacturing expansion to take advantage of the tumultuous trade relations between the U.S. and China. 

India has selectively benefited from global diversification pressures in certain manufacturing sectors. However, the depth of such structural transformation remains uneven across those sectors most affected by the restructuring of global value chains. It appears that long-term outcomes are closely tied to the quality and scope of India’s domestic infrastructural, regulatory, and technological adjustments. 

Global Supply Chain Reconfiguration: Mechanisms and Evidence

The shifts in global manufacturing geography since 2018 are highly correlated with changes in U.S. trade policy (Alfaro & Chor, 2023). Tariffs imposed under Section 301 of the Trade Act were applied to a broad range of Chinese goods and were implemented in several waves, raising hundreds of billions of dollars from U.S. imports. While the direct objective of these measures was to address trade imbalances and technology-related national security concerns, their cumulative effect was to alter the relative prices from across a myriad of global supply chains. The effects were far-reaching, where even moderate tariff differentials had a significant impact on firms operating within highly integrated production networks and supply chains.

One measurable consequence has been a reorientation of U.S. import shares, as appear in Table 1. One U.S. government report found that China’s share of total U.S. imports declined by five percentage points from 2018 to 2022 (USITC, 2023). Alternative suppliers, like Vietnam and Mexico, experienced corresponding trade share increases during this time while India’s share of U.S. imports rose only modestly. These shifts do not imply that total export production simply “moved” from China to other countries. Indeed, intermediate goods for several sectors continued to be produced in China, with the final assembly being shifted elsewhere to defray tariff exposure. This implies these trade number adjustments cannot be fully explained solely by changes in tariff policies.

For example, the COVID-19 pandemic exposed vulnerabilities in supply chains that were highly geographically concentrated. Temporary factory shutdowns, shipping bottlenecks, and semiconductor shortages exposed the risks associated with depending highly upon a single country’s economy for the supply of critical imported goods. Afterwards, multinational firms reassessed the resilience of their production cost structures to global supply chain shocks. When the tariff-filled disputes between the world’s two largest economies was imposed upon this transitional environment, production decisions increasingly re-examined the tension between economic efficiency and supply security.

It is within this global context that the concept of “friend-shoring” (a term originated by Javorcik et al., 2022) gained prominence, which describes a strategy where sectors in national economies prioritize trade and investment relationships with politically aligned or strategically trusted trading partners. While the traditional concept of offshoring is driven primarily by the pursuit of cost minimization, friend-shoring incorporates geopolitical risk into supply chain sourcing decisions. This focus contrasts with the concept of “nearshoring,” which involves relocating production geographically closer to end markets (like U.S. firms expanding operations in Mexico). It also contrasts with the concept of “regionalization,” which reflects increasingly concentrated supply chains that arise within geographic trade blocs.

The current tariff environment has intensified businesses to diversify supply risks by avoiding certain trade exposures, raising questions about whether global trade is entering a phase of deglobalization or geopolitical divergence. While deglobalization implies a sustained contraction in cross-border trade and value chains, divergence reflects a reorganization of production into more regionally or politically aligned blocs without an overall collapse in trade intensity.

Aiyar et al. (2023) argue that aggregate trade data reveal reconfiguration rather than contraction in global supply chains. After the pandemic-induced decline in 2020, merchandise trade volumes rebounded and cross-border production networks remained interconnected. Intermediate goods continue to represent a substantial share of global trade, indicating ongoing multinational integration. As the WTO (2023) observes, “Trade is not retreating but is being reconfigured along geopolitical lines.” To clarify this reconfiguration dynamic, it is useful to compare three economies—China, Vietnam, and Mexico—each representing a distinct supply-chain model and serving as a benchmark for alternative manufacturing hubs.

China

China remains the world’s largest manufacturing economy in terms of value added and export scale (World Bank, 2026). Over several decades, it has developed dense industrial clusters that integrate upstream suppliers, component producers, logistics providers, and final assemblers (World Bank, 2020). Its manufacturing ecosystem spans electronics, machinery, chemicals, textiles, and capital goods, among other sectors. Even where final assembly shifts abroad, Chinese firms frequently remain embedded in upstream segments of production (Freund, et al., 2023). As such, China serves as the baseline case: a deeply integrated, large-scale manufacturing ecosystem that is difficult to replicate quickly.

“China+1” is a strategy where multinational firms maintain
a substantial production presence in China while adding additional manufacturing locations in other countries

Vietnam

Vietnam represents an agile export-platform model. Over the past decade, it has integrated rapidly into East Asian electronics value chains, attracting significant foreign direct investment in assembly operations (Freund et al., 2023). Its export-to-GDP ratio is high relative to its economic size (World Bank, 2024) and multinational firms have used it as a supplementary production base under “China+1” strategies. Vietnam’s gains in U.S.-bound exports following the tariff escalation illustrate how smaller economies can capture trade diversion when they are closely embedded in regional supply networks (UNCTAD, 2024).

Mexico 

Mexico reflects a situation of nearshoring within a regional trade bloc. Under the United States–Mexico–Canada Agreement (USMCA), Mexico enjoys preferential access to the U.S. market and deep integration in sectors such as automotive manufacturing and electronics (Freund et al., 2023). Geographic proximity reduces shipping times and inventory costs, making Mexico an attractive location for firms seeking to shorten supply chains while maintaining access to North American consumers (UNCTAD, 2024). In recent years, nearshoring dynamics have reinforced Mexico’s role as a regional manufacturing hub.

These three cases illustrate distinct pathways in global manufacturing evolution: ecosystem depth, export-platform agility, and regional integration. Rather than disappearing, trade flows are being redistributed as firms diversify geographically. Whether India can structurally adapt to capitalize on this shift remains the central question.

India’s Industrial Capacity: Strengths and Structural Constraints

India’s ability to benefit from global supply-chain reconfiguration depends on the strength of its domestic industrial capacity and the quality of its institutional environment. These key characteristics will determine the underlying economic strengths of its current economic infrastructure, the effectiveness of its regulatory environment, and the capacity to deeply integrate its manufacturing sectors to adapt to evolving global value chains.

Structural Strengths of India’s Economy

Perhaps India’s most immediate advantage lies in the mere scale of its domestic production. As one of the largest and fastest-growing global economies, India offers multinational firms both a viable export platform and access to its expanding domestic market. And unlike smaller export-dependent economies, India’s economic growth does not rely primarily on volatile, external demand. Further, its young national demographic profile fuels a steadily growing consumer demand, providing a valuable counterbalance to the high volatility that external markets exhibit.

India holds three structural advantages over many regional competitors. First, its working-age population continues to expand, unlike the aging demographics of China and several Southeast Asian economies (OECD, 2023a; World Bank, 2024). Second, manufacturing wages remain below China’s, preserving cost competitiveness in labor-intensive and assembly sectors. Third, expanded tertiary and technical education over the past two decades has produced a large cohort of engineering and IT graduates supporting both services exports and emerging manufacturing capabilities. Together, these factors strengthen India’s long-term prospects as a diversified production base.

India’s public sector has pursued targeted industrial policy to strengthen its regional competitiveness. Introduced in 2020, the Production Linked Incentive (PLI) scheme provides performance-based fiscal incentives to firms that expand domestic manufacturing beyond a defined base level (Ministry of Commerce and Industry, 2020). Rather than offering unconditional subsidies, it ties support to incremental production and investment in sectors such as electronics, pharmaceuticals, and automotive components. The policy aims to attract investment, expand capacity, and deepen participation in global value chains. In parallel, public investments in highways, freight corridors, and port modernization seek to reduce logistics bottlenecks (World Bank, 2023a).

Infrastructure, Logistics, and Regulatory Frictions in India’s Economy

Together, economic scale, advantageous demography, and public policy focus help explain why India is frequently identified as a candidate beneficiary of global supply-chain diversification. Yet these strengths coexist with structural constraints that complicate the translation of global trade reallocation opportunities into accommodating industrial transformation. While India has improved its logistics performance over the past decade, much room for improvement remains.

For example, the World Bank (2023b) has developed a Logistics Performance Index (LPI) for 139 countries. While India’s economy improved from 54th in 2014 to 38th in 2023, the report noted that this still middling ranking was partly the result of Indian business logistics costs (expressed as a share of GDP) remaining relatively high compared to its major manufacturing competitors. For just-in-time global production networks, like electronics and automotive components, supply predictability and production speed can be just as important as wage levels (OECD, 2023a).

While India’s federal system has focused on subsidizing specific sectors under policies like the PLI, it also allows for a highly complex and varied system across its states governing land acquisition procedures, contract enforcements, and administrative processes. Such an environment reduces predictability and consistency in facilitating economic opportunities, weighing heavily on multinational corporations seeking long-term capital commitments (World Bank 2023b). 

India’s financial system presents an additional structural constraint. Although the banking sector has strengthened, credit access remains uneven, with small and medium-sized enterprises (SMEs) facing higher risk-adjusted barriers than large firms (Reserve Bank of India, 2024). As SMEs are often key suppliers within manufacturing ecosystems, such limited access to capital constrains upgrading and reduces sectoral flexibility. This financial sector scenario favors expansion at the assembly stage while limiting deeper upstream development. 

Manufacturing Depth and Global Value Chain Integration

Despite policy emphasis on industrial expansion, Table 2 reveals India’s value-added manufacturing as a share of GDP remains lower than most East Asian benchmarks. India’s growth path over the past two decades exhibits a much larger expansion of its services sector than its manufacturing sector (World Bank, 2026). While a services orientation in an economy provides strengths in digital integration and business services, it also reduces India’s dependency on export-intensive manufacturing sectors. 

Countries deeply embedded in global value chains (GVCs) rely on imported intermediate goods for processing and re-export, often supplying inputs used in other countries’ final exports. In this way, India participates in global production networks across pharmaceuticals, chemicals, textiles, and certain electronics segments (World Bank, 2020). Backward integration in complex manufacturing supply chains remains shallower in India than for regional competitors, such as Vietnam or China (OECD, 2023a). This configuration has two implications. First, India’s relatively higher domestic value-added share in some exports may reflect less intensive integration into multi-country production networks, rather than deeper technological sophistication. Second, limited upstream component ecosystems can constrain the speed at which new assembly operations translate into the broad-based industrial upgrading needed for sector restructuring.

India’s ability to navigate global restructuring will depend on the balance between its structural strengths and weaknesses. Strengths include domestic market scale, favorable demographics, relatively low wages, and targeted industrial policy. Weaknesses include regulatory inconsistency and persistent logistical inefficiencies across states. As a result, manufacturing transformation is likely to proceed incrementally rather than through rapid systemic change.

Sectoral Transmission Channels: Diversification and Industrial Depth

Global supply-chain reconfiguration does not affect all sectors of a nation’s economy uniformly. To evaluate how India will likely respond to global diversification pressures, it is useful to distinguish between those sectors with high trade diversion with moderate upgrading potential, and those with moderate trade diversion with higher upgrading potential. This distinction helps clarify why rapid export growth in some industries may not automatically translate into durable industrial deepening.

High Trade Diversion with Moderate Upgrading Potential

A clear example of high trade diversion with moderate upgrading potential is electronics manufacturing, particularly mobile phone assembly. Tariff escalation has encouraged multinational firms to diversify assembly across multiple countries to reduce tariff exposure and minimize geopolitical risk. Because electronics production is modular, final assembly can relocate without restructuring upstream component supply. Semiconductor fabrication, advanced components, and design functions therefore remain concentrated elsewhere (Freund et al., 2024).

India’s mobile phone exports rose from roughly $3–4 billion in 2017–18 to over $15 billion by 2023–24, making electronics one of its fastest-growing export categories (Ministry of Commerce and Industry, 2024). Total electronics exports now exceed $25–30 billion annually, reflecting rapid assembly expansion under the PLI scheme (Ministry of Commerce and Industry, 2024). This growth aligns with “China+1” strategies, as firms retain core operations in China while adding supplementary assembly capacity elsewhere. 

However, the upgrading potential within this configuration is relatively moderate. A substantial share of intermediate components continues to be imported, limiting domestic value-added growth. Supplier ecosystems in India remain less dense than in established East Asian production hubs (Ministry of Commerce and Industry, 2024). The result is a pattern in which export volumes expand rapidly, but upstream integration and technological depth advance more gradually. Such sectors illustrate how trade diversion can generate visible gains without immediately producing comprehensive industrial transformation.

Moderate Trade Diversion with High Upgrading Potential

Other sectors of the Indian economy may exhibit less dramatic tariff-driven relocation impacts but still possess greater long-term upgrading potential. While India is already a major exporter of generic drug formulations, many parts of its pharmaceutical supply chain remain dependent on imported intermediate goods (World Bank, 2020). While global concerns about supply resilience in health-related industries have encouraged diversification of product sourcing around the world, value chain relocation in this sector is more complex than in electronics assembly. This means India’s existing drug manufacturing sector already is heavily reliant on regulatory compliance, quality assurance systems, and capital-intensive production facilities for both imports and exports.

Upstream chemical synthesis, process engineering, and compliance expertise contribute to higher value-added segments of the production chain. This means achieving deeper pharmaceutical and chemical sector upgrading involves acquiring more substantial skilled labor accumulation and technological integration than most assembly-driven sectors. Consequently, sectors in this category tend to expand more gradually but potentially offer greater prospects for lasting structural deepening. These sectors are less sensitive to short-term tariff changes and more dependent on sustained investment, regulatory credibility, and skill development.

Implications for India’s Trajectory in Manufacturing

The distinction between these two combinations of sectoral transformation clarifies an important aspect of India’s potential industrial evolution in response to global value chain restructuring. The sectors experiencing the most visible and rapid export growth are not always those with higher, more lasting upgrading potential. Conversely, industries capable of generating higher domestic value-added may respond with relatively slower deepening when trying to capitalize on external global shocks.

This implies that, in the near term, India’s manufacturing expansion is likely to be led by sectors with high trade diversion but moderate upgrading potential. This is particularly true with sectors like electronics assembly, where trade diversion and diversification pressures are strongest. Over the medium term, however, the sustainability of manufacturing growth will depend more heavily on the development of sectors with moderate trade diversion but high upgrading potential. Understanding this divergence between short-term expansion through trade diversion potential and long-term capacity upgrading through manufacturing sector deepening is essential for evaluating India’s evolving role in the current environment of global restructuring.

Comparative Positioning: India Relative to China, Vietnam, and Mexico

Assessing India’s position within global manufacturing realignment requires comparison with other economies that have experienced similar diversification pressures. China, Vietnam, and Mexico represent three distinct models of supply-chain integration: ecosystem depth, export-platform agility, and regional nearshoring. Evaluating India relative to these models helps clarify both its opportunities and its structural constraints.

China: Ecosystem Depth and Structural Centrality

China remains the dominant manufacturing economy in the global system, producing nearly 30% of global manufacturing output (World Bank, 2024). The value added within its manufacturing sectors exceeds that of any other country, supported by dense industrial clusters that integrate upstream suppliers, component manufacturers, logistics providers, and final assemblers (World Bank, 2020). Over several decades, China has developed extensive capabilities in electronics, machinery, chemicals, textiles, and capital goods. Even where tariff pressures have reduced China’s direct share of U.S.-bound exports in certain sectors, Chinese firms often remain embedded in upstream production stages.

However, relocating final assembly does not replicate the full supplier network, engineering base, or infrastructure that underpin China’s manufacturing system. As a result, most corporate diversification strategies reflect partial redistribution rather than wholesale substitution. India, like other emerging alternatives, competes primarily in specific segments of production rather than across the entire value chain. In comparison to China’s scale and integration, India’s manufacturing ecosystem remains less dense and less vertically integrated.

Vietnam: Export-Platform Agility

Vietnam offers a contrasting model characterized by rapid export-led integration into global value chains. Over the past decade, it has attracted substantial foreign direct investment in electronics assembly and related sectors. Its export-to-GDP ratio is high relative to its economic size, reflecting a development strategy centered on manufacturing for external markets (World Bank, 2026). Following the escalation of U.S.–China tariffs, Vietnam experienced significant increases in exports to the United States, particularly in electronics and consumer goods.
Several structural factors support Vietnam’s agility, such as a strong integration within East Asian supply chains, streamlined export-oriented policies, and relatively efficient logistics for its scale. However, Vietnam’s domestic market is smaller than India’s, and its long-term scalability is more limited. While Vietnam has successfully captured trade diversion in assembly-intensive sectors, its model depends heavily on foreign-invested enterprises and imported intermediates. In contrast, India has a larger domestic market and broader sectoral base, but it has integrated more gradually into export-driven manufacturing networks. Vietnam currently appears more deeply embedded in electronics-centered global value chains, while India’s integration remains more uneven across sectors.

Mexico: Nearshoring and Regional Integration

Mexico represents a third model shaped by geographic proximity and trade agreement integration. Under the United States–Mexico–Canada Agreement (USMCA), Mexico enjoys preferential access to the U.S. market and has long-standing integration in automotive and electronics supply chains. Nearshoring dynamics allow Mexican firms to relocate production closer to final U.S. consumer markets, enabling Mexico’s role as a North American manufacturing hub. Such proximity reduces shipping times and inventory costs, strengthening Mexico’s competitiveness in time-sensitive industries. Indeed, U.S. import shares from Mexico have increased over the last two decades, reflecting both tariff-induced diversion and broader regionalization trends (World Bank, 2026).

In contrast, India does not benefit from similar geographic proximity to major consumer markets, nor from integration within a comparable regional trade bloc. Its competitive advantage therefore rests less on nearshoring dynamics and more on scale, labor supply, and long-term market potential.

India’s Intermediate Position

India’s economy occupies a distinct position when examined against these three economies. It does not match China’s ecosystem depth or manufacturing scale. It has not integrated as rapidly into export-oriented electronics networks as Vietnam. Nor does it enjoy Mexico’s nearshoring advantage within a regional trade agreement framework. However, India has a large and growing domestic market, an expanding and increasingly skilled labor force, and a public sector focused on policy-driven manufacturing incentives infrastructure investment. These factors support gradual industrial expansion and provide some resilience against external demand fluctuations.

This suggests that India is becoming neither a replacement for China nor a predominantly export-oriented economy. India is potentially becoming a selective diversification platform for foreign investment, but not for all sectors. The strongest advantage will likely be in those manufacturing sectors that are aligned with modular assembly and receive targeted industrial policy support. However, the ecosystem depth and supply-chain integration of the Indian economy remain less advanced than in more deeply embedded manufacturing hubs, implying that the potential gains may be modest.

India’s competitive advantage rests less on nearshoring dynamics and more on scale, labor supply, and long-term market potential

This intermediate positioning implies that India’s role in global manufacturing realignment is likely to expand incrementally rather than dramatically. It may continue to capture specific segments of diversified supply chains while gradually building domestic capabilities. Whether this trajectory evolves into broader structural upgrading depends on the extent to which constraints identified earlier—logistics, regulatory complexity, supplier depth, and technological capacity—are progressively mitigated.

The Risks Facing India’s Supply Chain Evolution

A primary source of uncertainty lies in the external global trade environment itself. For example, firms that diversified production as a hedge may consolidate operations if relative cost advantages reassert themselves. While India’s large domestic market offers partial insulation from such external shocks, its export-led sectors would remain exposed to global cycles. Therefore, the sustainability of India’s manufacturing growth depends on the stability of the broader global trade regime. 

A second risk concerns the structural depth of any industrial expansion. India’s fastest-growing export sectors, such as electronics assembly, are characterized by high trade diversion potential but only moderate upgrading potential. If domestic supplier networks do not deepen and upstream component production remains limited, manufacturing growth may plateau at the assembly stage. Without such sectoral deepening, Indian economic growth remains dependent on cost competitiveness and policy incentives rather than on technological capability.

Third, foreign direct investment (FDI) influences supply-chain relocation. India has received annual FDI inflows in the range of $70–80 billion in recent peak years, compared with approximately $25 billion for Vietnam and $30–35 billion for Mexico (UNCTAD, 2024). However, global FDI flows declined in 2023 amid tighter global financial conditions, underscoring the sensitivity of relocation-driven expansion to macroeconomic cycles. For example, tighter global liquidity conditions in emerging markets can reduce greenfield investment, slowing any relocation-driven sectoral expansion. Therefore, the pace of industrial scaling depends on financial intermediation promoted by a strengthening financial sector. Currently, India’s credit allocation remains uneven across firm sizes and regions with investment concentrated across large multinational and flagship domestic firms (OECD, 2023a). 

Finally, long term manufacturing competitiveness between nations increasingly depends more on technological capability than labor cost differentials (World Bank, 2020). If advanced economies increasingly adopt automated production, reshoring to developed markets may become more viable in selected sectors. This may be in India’s favor, as it continues to expand the technical skills of its labor force and enhance its research and engineering capabilities within its existing assembly-led electronics manufacturing sector.

Indian economic growth remains dependent on cost competitiveness and policy incentives rather than on technological capability

Taken all together, these factors suggest that India’s manufacturing expansion is neither fragile nor guaranteed. In the near term, diversification pressures, domestic market scale, and targeted industrial incentives support continued sectoral growth. Over the medium term, however, sustainability depends less on tariff dynamics and more on structural upgrading, technological deepening, financial stability, and energy adaptation.

The most plausible trajectory for the Indian economy appears to be incremental expansion rather than rapid systemic transformation. India is likely to consolidate gains in selected sectors aligned with global reconfiguration, while the pace of broader industrial upgrading remains contingent on domestic capability accumulation. External geopolitical developments may amplify or moderate this trajectory but are unlikely to determine it entirely. Understanding these risks and limitations clarifies that India’s role in global manufacturing realignment is best interpreted as conditional and evolving, which will be shaped by both opportunity and constraint.

Conclusion: Selective Gains in a Reconfigured System

The reshaping of global manufacturing geography after 2018 has generated significant debate about the sustained future of globalization and the rise of alternative production hubs. This analysis examines the existing research and empirical evidence to conclude that world trade is evolving less toward systemic deglobalization and more toward supply chain reconfiguration. Nations around the world can expect a redistribution and diversification of supply chain relationships. India will likely emerge as a relevant player in such global diversification strategies responding to tariff differentials and risk management strategies.

Framing the analysis using the distinction between economic reconfiguration and global withdrawal is key, allowing for greater appreciation of the distinction between trade diversion and structural upgrading. While export growth may reflect short-term substitution effects in response to tariffs and geopolitical uncertainty, evolving FDI flows will reflect structural transformations. This generates deeper, longer lasting integration into global value chains, expanding value-added domestic production, and an enhanced technological capacity.

The research and evidence reviewed in this analysis suggest that India has likely captured only selective gains from global supply-chain diversification. Electronics assembly and certain other segments of specialty manufacturing are rapidly expanding, supported by industrial incentives and foreign investment commitments. At the same time, upstream integration and ecosystem density remain less developed than in the established manufacturing hubs of other nations. As a result, India will not likely replicate China’s ecosystem depth, Vietnam’s export-platform intensity, or Mexico’s nearshoring advantage. 

India’s trajectory will depend less on short-term tariff-induced diversion and more on whether it can deepen domestic technological capabilities and supplier ecosystems. The durability of its manufacturing expansion will therefore be determined by structural transformation rather than cyclical relocation dynamics. Ultimately, India’s constraint is not market size or labor supply, but incomplete ecosystem density and technological depth. India’s future expansion will depend less on the volatility of tariff wars and more on the capacity for domestic structural evolution. 

By Michael Stroup, The United States

Photo: Aj33 / pexels.com, Adani Group, shutterstock, Prime Minister’s Office (GODL-India), freepik.com