India was supposed to be one of the biggest beneficiaries of the global shift in manufacturing. As companies sought to reduce their dependence on China, the country seemed well positioned to attract them.
India has a large workforce, a huge domestic market and the geopolitical importance that made it an attractive partner for Western economies looking to diversify their supply chains. For India, this appeared to be a major opportunity to turn its growing economic and strategic importance into a stronger position in global manufacturing.
The Make in India campaign, followed by the Production Linked Incentive (PLI) schemes, was designed to attract investment, expand domestic production and establish India as a major manufacturing hub. These policies have helped India expand sectors such as mobile phones and consumer electronics, even though they have not yet reduced overall import dependence.
These gains have not produced the broad-based manufacturing transformation that India had hoped for. The country has attracted factories and increased production, but the deeper question is whether it is developing the capabilities that make manufacturing sustainable in the long term.
The latest figures make this tension difficult to ignore. India’s final manufacturing Purchasing Managers’ Index (PMI) fell to a five-year low of 52.8 in August 2026. Although a reading above 50 still indicates expansion, the figure points to a significant slowdown in manufacturing activity.
This does not suggest that Indian manufacturing is in crisis. India’s economy nevertheless grew by 7.8% in April-June, while manufacturing remained a major contributor to growth. The more important question is what kind of manufacturing growth India is achieving, and whether it is deep enough to support its ambition of becoming a major global manufacturing power.
This distinction matters because global manufacturing is not simply about assembling a finished product. Production is organized through complex networks of suppliers, components, technologies and logistics, with countries capturing different shares of the value created along these chains.
A country can assemble a finished product without producing many of the components or technologies that go into it. In such a case, it may participate in manufacturing without capturing a large share of its value.
India’s electronics industry illustrates this challenge. Smartphone production and exports have expanded dramatically, but domestic value addition in electronics manufacturing remains relatively limited. Government figures put domestic value addition in electronics manufacturing at around 23% in 2026.
This means that although India has become an important location for assembling and exporting smartphones, a significant part of the wider production chain still lies outside the country.
This suggests that the challenge is not simply getting companies to manufacture in India. It is developing the domestic suppliers and upstream industries that allow production to take place increasingly within the country.
Deeper participation in global manufacturing requires domestic suppliers, technological capabilities and the ability to compete in international markets. Without these capabilities, India risks attracting manufacturing activity without developing the wider industrial ecosystem needed to sustain it.
India’s solar industry provides an even clearer example of the difference between manufacturing capacity and manufacturing depth. India had around 233 gigawatts of solar PV module manufacturing capacity by June 2026, making it one of the world’s largest manufacturing bases.
Yet module capacity was nearly seven times cell capacity and 116 times ingot-wafer capacity, revealing a major gap in upstream manufacturing.
This is why the current slowdown should be viewed as a warning rather than a verdict on India’s manufacturing ambitions. The challenge is therefore not attracting manufacturing altogether, but ensuring that the manufacturing India attracts develops stronger domestic linkages and creates lasting capabilities.
Otherwise, investment can remain concentrated in a few sectors or depend heavily on government incentives rather than becoming part of a broader industrial transformation.
China’s manufacturing dominance, moreover, was not created overnight by geopolitical circumstances. It was built over decades through investment in infrastructure, supplier networks, industrial clusters, export capacity, technology and integration into global markets.
China remains deeply embedded in global manufacturing even as companies diversify parts of their production elsewhere. India now has an opportunity created partly by geopolitical change. But geopolitical opportunity alone cannot create the industrial depth that China spent decades building.
China+1 may have opened the door for India. What happens next depends on whether India can build the industrial ecosystem to walk through it.
*The views presented in this article are the authors’ own and do not necessarily reflect the views of The Diplomatic Insight.*
Gule Zahra
Gule Zahra is an MPhil scholar of International Relations at the National Defence University, Islamabad, Pakistan. Her research interests include Global Political Economy and Global South Studies.
