The US-China trade war began as a tariff dispute and has become a structural reorganisation of global manufacturing geography. The COVID-19 pandemic, which exposed the vulnerability of single-country production concentration with particular brutality in pharmaceuticals, India was importing two-thirds of its active pharmaceutical ingredients from China as late as February 2020, accelerated a diversification imperative that was already building. The result has been the most significant reallocation of manufacturing investment since China's accession to the WTO in 2001. India is the primary beneficiary of this reallocation among large economies. Understanding why, and what the investment consequences are, requires moving past the China Plus One slogan into the specific sectors, companies, and policy mechanisms through which the shift is materialising.
The Apple story is the most visible signal. In the first half of 2025, iPhone production in India rose 53% compared to the same period a year earlier, reaching nearly 23.9 million units. Exports of India-assembled smartphones totalled $22.56 billion, up from $14.71 billion the previous year. For the first time in history, India overtook China as the top source of smartphone exports to the United States, with India-assembled devices accounting for 44% of US smartphone imports in Q2 2025. Apple's target is for all US-bound iPhones to be assembled in India by end-2026, with a broader goal of handling approximately 25% of global iPhone production from India by 2027.1
The Apple shift is significant not primarily for Apple's own revenue, though $22.56 billion in exports is material, but for the signalling effect it sends to every other global supply chain manager evaluating India versus its alternatives. When the world's most logistically demanding consumer electronics company, with the most complex quality requirements and the tightest delivery windows, commits to India at this scale, it closes the debate about whether India is capable of high-quality mass manufacturing. It also creates a gravitational pull: as Foxconn, Pegatron, and Tata Electronics build capacity in Tamil Nadu, their component suppliers follow, creating the local ecosystem depth that makes India progressively more attractive for the next wave of investors.
The strategic geometry
India's geopolitical positioning is genuinely unusual in the current global order. It is the world's largest democracy, with cultural and institutional ties to Western liberal democracies, and it is a founding member of the Quad alongside the United States, Japan, and Australia, a grouping explicitly formed to counterbalance Chinese strategic influence in the Indo-Pacific. At the same time, India maintains independent foreign policy traditions, substantial historical ties to Russia including defence equipment dependencies, and economic relationships with China that cannot be wound down overnight. This ambiguity, often criticised as strategic non-alignment, is actually a structural advantage for attracting manufacturing investment from multiple directions simultaneously.
Western supply chain diversification logic favours India because it is geopolitically safe: companies moving production to India are not exposed to the secondary sanctions and extraterritorial compliance risk that come from operating in countries more closely aligned with China or Russia. Chinese companies diversifying their manufacturing footprint to avoid US tariffs also favour India in some categories, because India's non-alignment means Indian-made goods do not trigger the same political resistance that Vietnamese or Mexican goods increasingly face as those countries become perceived as Chinese transshipment hubs. India can simultaneously attract Western friendshoring and serve as a legitimate third-party manufacturing location for all parties in the current trade conflict.
The numbers reflect this dual draw. FDI equity inflow into the Indian manufacturing sector grew 69% over the decade 2014-24 compared to the previous decade 2004-14. Toyota established a new plant in Karnataka. Hyundai invested in Maharashtra in 2024. Samsung began manufacturing laptops in India in 2024 at a facility originally dedicated to smartphone production. In pharmaceuticals, where the 2020 API vulnerability is fresh institutional memory, the Production-Linked Incentive scheme for bulk drugs has attracted investment to reduce import dependence. In defence, the BrahMos supersonic cruise missile demonstrated such decisively superior performance in the India-Pakistan conflict of May 2025 that export inquiries have accelerated from the Philippines, Vietnam, and Indonesia.2
India is the only country in the world that can simultaneously attract Western friendshoring capital, serve as a manufacturing location for companies seeking to escape Chinese tariff exposure, and offer a domestic market of 1.4 billion consumers to justify the fixed cost of establishing local production. No other large economy has all three characteristics at once.
The PLI architecture and its investment implications
The Production-Linked Incentive scheme is the policy mechanism that converts geopolitical interest into committed manufacturing investment. Launched in 2020 across fourteen sectors, mobile phones and electronics, pharmaceuticals, medical devices, automobiles, advanced chemistry batteries, textiles, food processing, specialty steel, solar PV, telecom and networking, white goods, and others, the PLI provides output-linked financial incentives, typically 4-6% of incremental sales over a base year, to companies that meet specified production thresholds.
The design is deliberately output-linked rather than input-linked: companies receive incentives only when they successfully produce and sell, which aligns the financial risk with performance delivery rather than creating the moral hazard of upfront subsidy capture. In the mobile phone category, the PLI has reduced India's import dependency from 74% in 2014 to approximately 1% in 2024, one of the most rapid import substitution outcomes in any major economy in recent years. India's mobile phone production value surged from ₹18,900 crore (~$2.3 billion) in 2014 to ₹4,22,000 crore (~$50 billion) in 2024, a 22x expansion in a single decade, with value addition shifting from semi-knocked-down assembly toward fully localised component manufacturing.3
The next phase of the electronics supply chain story is semiconductor manufacturing. India has attracted $1.52 billion in semiconductor investments under the Semicon India programme, and the Electronics Component Manufacturing Scheme is targeting localisation of printed circuit boards, lithium-ion batteries, and display driver chips, currently the most significant import dependencies in India's electronics supply chain. This is a 5-10 year buildout, not a 12-month story, but the direction of travel is clear and the government commitment is credible.
Strategic autonomy and the limits of the thesis
The geopolitics tailwind is real but it is not without constraints, and the honest assessment includes the limitations.
Infrastructure bottlenecks remain genuine friction. Customs delays at Chennai airport, inadequate freight corridor connectivity between production centres and ports, and the continued reliance on Chinese-origin components for advanced electronics create operational vulnerabilities that limit the speed at which supply chain relocation can scale. India's component ecosystem is still several years behind what is required to support truly indigenous high-end electronics manufacturing, critical components continue to require East Asian imports, which means the supply chain diversification achieved so far is partial rather than complete.
The tariff environment under the Trump administration introduced uncertainty. India faced a 26% reciprocal tariff rate compared to China's 34%, a differential that supports Indian competitiveness but is not as wide as some supply chain modellers had assumed. More importantly, the tariff structure is subject to negotiation, and the India-US trade relationship involves genuine areas of contention, particularly around Indian market access barriers in agriculture and certain manufacturing categories, that could affect the pace of supply chain integration.
India's domestic market of 1.4 billion people is the ultimate insurance policy against geopolitical volatility in export markets. A company that builds manufacturing capacity in India to serve the US market is simultaneously positioning to serve one of the fastest-growing consumer markets in the world as Indian middle-class income expansion creates demand for the products it makes. This dual market logic, export platform and domestic consumption story, makes India more resilient to shifts in the US-China trade relationship than any single-purpose export economy would be. Vietnam and Mexico both offer lower costs in specific labour-intensive segments, but neither offers the combination of geopolitical alignment, supply chain scale, and domestic market depth that justifies India's long-term investment claim on global manufacturing capital.