CNBC's Inside India newsletter: From Shein to iPhones: India’s manufacturing moment is here

Several companies are shifting manufacturing and supply chain operations to India, driven by geopolitical tensions and economic incentives; fast-fashion giant Shein plans to ramp up manufacturing in India, mirroring moves by Apple, Google, and VinFast who are expanding production and export capabilities there. India's appeal stems from its large labor force, government incentives like the Production-Linked Incentive (PLI) scheme, and a desire by firms to diversify beyond China, however, challenges remain regarding logistics, regulatory hurdles, and labor standards. While India is poised to benefit from this realignment, Nomura suggests other countries like Vietnam and Mexico are also gaining market share, indicating a broader diversification trend rather than a complete shift away from China.

Analysis

Global corporations are actively diversifying their manufacturing operations, positioning India as a key beneficiary of the "China + 1" strategy, driven by ongoing geopolitical tensions, such as the U.S.-China trade war, and attractive economic incentives. Fast-fashion giant Shein's plan to increase its Indian supplier base from 150 to 1,000 within a year, following its re-entry into the market with Reliance Industries, exemplifies this trend, which spans multiple sectors. Tech major Apple is expanding its Indian footprint, evidenced by Foxconn's $1.5 billion commitment to its Tamil Nadu iPhone facility; currently, about 18% of iPhones are made in India, a figure analysts project could reach 25% by 2027. This contributed to India's smartphone exports reaching $24.14 billion in 2024-25, a 55% year-over-year increase. Similarly, Google will commence Pixel smartphone assembly in India with Dixon Technologies, targeting a doubling of its hardware revenue in the region. The trend extends to automotive, with Vietnamese EV manufacturer VinFast investing $2 billion in a Tamil Nadu plant to establish an export hub, and aerospace, where Airbus and Pratt & Whitney are increasing component sourcing from Indian suppliers, leading to a 38% year-on-year rise in aerospace exports in 2023-2024. The Indian government's Production-Linked Incentive (PLI) scheme, launched in 2020 across more than a dozen sectors, has reportedly attracted over $33 billion in committed investments. Supporting this manufacturing push, India's macroeconomic environment shows headline inflation easing to a cooler-than-expected 2.82% in May, with food inflation at 0.99%. This enabled the Reserve Bank of India (RBI) to implement its third consecutive rate cut, lowering the benchmark policy rate by 0.5 percentage points to 5.5%, its lowest since August 2022, signaling a strong focus on bolstering growth, as noted by HSBC's chief India economist. Constructive India-U.S. trade talks are also progressing, with hopes for a deal before potential reciprocal tariffs resume.

Despite this positive momentum, India faces significant hurdles. Susannah Streeter of Hargreaves Lansdown highlighted risks including reports of labor violations on cotton farms. Furthermore, India grapples with logistical bottlenecks, as evidenced by its 38th position in the World Bank's 2023 Logistics Performance Index, alongside regulatory complexities and inconsistent infrastructure. Nomura's 2023 and 2025 reports, while affirming India's potential gains, also indicated that countries like Vietnam, Mexico, and Bangladesh are similarly benefiting from the "China + 1" strategy, suggesting a broader global supply chain rebalancing rather than a complete shift. Indian equity markets have shown resilience, with the Nifty 50 and BSE Sensex up over 6% and 5.39% year-to-date respectively, despite recent minor declines attributed to global trade sentiment. In unrelated negative news, an Air India Boeing 787, en route to London with 242 people, crashed after takeoff from Ahmedabad, an event directly impacting Boeing. The overall trend underscores that companies are prioritizing resilient and diversified supply chains, making India an important, though not sole, contender in the evolving global manufacturing landscape.

Key Decisions for Investors

• Evaluate opportunities in Indian sectors like electronics, automotive, and aerospace components, which are direct beneficiaries of increased foreign investment and the PLI scheme, while diligently monitoring execution risks, infrastructure development progress, and labor compliance.
• Adopt a diversified approach to the "China + 1" theme, recognizing India's growing importance but also considering exposure to other emerging markets such as Vietnam and Mexico that are attracting manufacturing shifts.
• Consider the RBI's accommodative monetary policy and easing inflation as supportive factors for Indian equities, but remain vigilant regarding persistent logistical challenges, regulatory hurdles, and global economic headwinds that could temper growth.
• Monitor developments related to the Air India Boeing 787 crash for its specific impact on Boeing (BA), while noting the positive sentiment and expansion activities in India for companies like Apple (AAPL), Google (GOOGL/GOOG), and VinFast (VFS).