Amidst geopolitical tensions, rising tariffs, and supply chain disruptions in China, India is emerging as a global supply chain hotspot. A growing number of U.S. businesses are actively shifting sourcing and manufacturing operations to India with plans for future expansion. In fact, nearly two thirds of executives for US companies expressed a preference to manufacture products in India rather than China, with 56% saying they want India to fulfill their supply chain over the next 5 years. As a result, major corporations like Walmart, Apple, and Suzuki have already begun significant expansions in purchasing and manufacturing hubs. In this article, we explore the market opportunities and challenges of expanding supply chains in India. 

Driving Forces 

India’s economic growth, government-led reforms, and favorable demographics make it an attractive market for both skilled manufacturing and supply chain operations. India’s economy is experiencing significant growth, with an 8.15% GDP increase between 2023 and 2024. Additionally, the Indian government is actively fostering an environment conducive to manufacturing expansion. The Indian government has introduced several nationwide initiatives like “Make in India” and the Production Linked Incentive (PLI), which both promote Indian manufacturing. These policies aim to increase the sector from 17% of GDP to 25% of GDP by 2025.  

Beyond these initiatives, India’s government aims to attract foreign manufacturing by taking aggressive steps to improve its infrastructure. India’s federal government has plans to invest the equivalent of $1.4 trillion USD over the next 5 years. Commerce hubs like Jawaharlal Nehru Port, which currently handles a quarter of India’s shipping containers, are undergoing expansion to accommodate the increasing volume of exports. This expansion will be vital to support larger flows of goods to the U.S.  

India also has several favorable conditions regarding demographics for supply chain operations. First, and most importantly, India possesses the second largest English-speaking population in the world, second only to the U.S. This is critical in establishing relationships with U.S.-based companies. Additionally, India has a young population, with a median workforce age of 28. China’s workforce, for comparison, has a median age of 40. These factors are crucial for establishing manufacturing hubs well-positioned for lasting relationships with American firms.  

American manufacturers have been working to reduce their reliance on China for some time now. Due to rising labor costs, vulnerable supply chains, and increasingly tense Chinese-American relations, manufacturers are adopting a “China Plus One” strategy. This strategy maintains manufacturing operations in China, while further expanding manufacturing into India, Vietnam, Malaysia, and other emerging markets. A complete shift away from China, in the short term, is unlikely due to its well-established infrastructure and manufacturing capabilities, but small-scale diversification can have significant effects for both supply chain resiliency and the emerging markets. 

Challenges and Opportunities 

Even with the optimism surrounding India’s supply chain expansion, challenges remain. Though large infrastructure spending packages have been pledged, Indian infrastructure may be unprepared to handle the amount of manufacturing and shipping desired by international companies. For example, the majority of India’s deepwater ports still cannot handle the largest shipping vessels. Comparatively, China possesses eighteen of the top fifty largest ports in the world compared with two in India. While new projects like the Jawaharlal Nehru Port expansion is a positive step, disparities between the scale of growth desired and Indian capabilities may still create growing pains for the foreseeable future. 

Another challenge is India’s continued dependence on China for critical raw materials and components. Even as manufacturing shifts to India, many secondary suppliers still source materials from China. This is especially problematic for firms that do not have full visibility into their second-tier suppliers. For example, shifting to India may make a product more expensive due to hidden secondary processes that largely occur in China.  

Managing multiple suppliers across different countries additionally introduces operational risks. While diversifying supply chains reduces reliance on a single market, it also increases logistical and coordination challenges. This may hinder competition between smaller and larger firms due to an inability to properly manage cross-border manufacturing complexities.   

Despite these hurdles, India presents immense opportunities in key verticals. The aerospace industry benefits from a highly skilled workforce and government incentives promoting manufacturing in the sector.  

Similarly, India’s medical technology sector is growing with companies like Boston Scientific establishing R&D centers in Pune. The automotive industry is another stronghold, with Tata Motors, Mahindra & Mahindra, and Maruti Suzuki leading the charge. Government incentives also support sectors such as railway, defense, and insurance which expands India’s manufacturing appeal. 

Major corporations like Walmart, Apple, and Maruti Suzuki have already begun significant expansions and can help pave the way for other western companies. Walmart, for example, aims to increase purchases from Indian suppliers to $10 billion by 2027 and Maruti Suzuki is investing $4.2 billion in a second factory in India. 

Looking Ahead 

As companies reassess their global supply chain strategies, India stands out as an increasingly viable alternative to China. Its combination of economic growth, favorable government policies, a vast workforce, and abundant natural resources make it a strategic choice for businesses looking to diversify operations. While challenges such as infrastructure constraints and lingering reliance on China persist, the long-term benefits of establishing supply chain operations in India may outweigh the risks for many firms. If you’re looking to optimize and future-proof your supply chains, Clarkston can help. Reach out to our supply chain experts today. 

Contributions from Jake Park-Walters