A quiet but important thaw is visible in US-China trade relations. Recent talks in Washington have hinted at a partial rollback of tariffs and a cautious reopening of technology supply lines. For Asia’s manufacturing economies, this change could reset the competitive map. For India, which has ridden the China+1 diversification wave, the development brings both opportunity and anxiety. The country’s electronics sector — now a pillar of its manufacturing exports — risks losing its cost advantage if Beijing regains favour in Washington’s boardrooms.
India’s rise in electronics manufacturing has been swift. In just five years, exports have more than tripled to about $28 billion in FY24, led by mobile phones and components. Much of this success came from global firms diversifying production away from China during the pandemic and amid tariff wars. As the two superpowers inch toward a limited reset, the same forces that propelled India’s ascent may now test its durability.
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The electronics edge India built
India’s manufacturing cost edge was crafted carefully. It rests on three levers: inexpensive labour, targeted state support through the Production-Linked Incentive (PLI) scheme, and a global appetite to diversify risk away from China. Labour costs here are nearly 30–40% lower than in China, according to RBI estimates. The Ministry of Electronics and IT has earmarked ₹38,000 crore under its PLI programme for electronics manufacturing, a move that drew global majors such as Apple, Foxconn, and Pegatron. Together, they exported devices worth over ₹90,000 crore in FY24.
This combination of cost advantage and supportive policy made India the natural alternative for multinationals seeking resilience in their supply chains. But the edge is fragile. It depends not only on India’s performance but also on China’s continued isolation from high-end technologies and Western markets. If that constraint weakens, India’s relative advantage could narrow quickly.
The détente risk: shifting global trade winds
The easing of tariffs and technology restrictions now being discussed between Washington and Beijing could alter cost structures across the region. If the US reduces levies on Chinese imports and restores semiconductor supply lines, China will once again leverage its unmatched scale and integration. According to Bloomberg, even a 10% reduction in tariff-related costs could wipe out India’s existing cost delta in electronics assembly.
Such a shift would have cascading effects. Lower input costs in China would make it cheaper for global firms to resume production there, while India’s import-dependent assembly model would come under stress. The reopening of chip access to Chinese manufacturers would further strengthen their vertically integrated ecosystem — something India is still building. The very premise of India’s competitiveness — being the affordable alternative — would then be at risk.
US-China trade: Supply-chain strategy under pressure
If trade tensions continue to cool, multinational firms may rebalance their global capacity rather than fully relocate it. Vietnam, Malaysia, and Mexico, already agile in mid-tech manufacturing, could attract incremental production, while India risks being perceived as a supplementary base rather than a full-scale alternative. Studies by the World Bank and UNCTAD suggest that global investors weigh supply-chain depth and efficiency more heavily than subsidies.
India’s challenge lies in closing that efficiency gap. Logistics costs, still at 13–14% of GDP, remain far higher than East Asia’s average of 8%. The country’s infrastructure has improved, but process bottlenecks — from customs to inter-state compliance — continue to sap competitiveness. If the geopolitical premium that favoured India fades, productivity and scale will have to take its place. Without them, the China+1 narrative could quietly shift to “China+some,” with India losing the pole position.
PLI and policy recalibration
India’s PLI scheme has succeeded in attracting assembly-scale investments, but it has yet to spark deep local value addition. Nearly two-thirds of the components used in mobile phones are still imported. Tariffs on inputs such as printed circuit boards, batteries, and sensors add 5–7% to final production costs. These duties may protect local firms but also undermine competitiveness. Rather than relying on import barriers, India should focus its fiscal support on research, logistics, and workforce skills.
Data from the Department for Promotion of Industry and Internal Trade show that foreign investment in electronics plateaued in 2024, reflecting fatigue with complex approvals and regulatory uncertainty. Simplifying customs procedures, harmonising state incentives, and reducing tariff inversion would restore investor confidence. Without such recalibration, India could end up winning the subsidy race but losing the efficiency contest that truly drives exports.
A recent Policy Circle analysis also highlights that the next phase of PLI should shift focus from output-linked incentives to value-chain integration and innovation funding. That is where long-term competitiveness will emerge.
The way forward
India’s manufacturing strategy must now evolve beyond reactive protection. The global trade environment that once rewarded diversification is shifting again. To stay ahead, India must deepen partnerships with other Asian producers, especially Vietnam and Taiwan, to build integrated sourcing networks for chips and components. It must also simplify FDI procedures and accelerate logistics reform so that capital and goods move as seamlessly as they do in China.
The long-term solution lies upstream — in semiconductors, displays, and precision components — where India still imports heavily. Building domestic capacity here is essential to reduce exposure to global shocks. The electronics sector’s cost edge cannot rely on transient tariffs or subsidies. It must emerge from scale, technology, and efficient coordination.
A Policy Circle commentary on trade strategy noted that India’s competitiveness will ultimately rest on how it manages integration rather than isolation. If the US-China thaw endures, India’s response will determine whether it remains a cost-efficient assembler or graduates to a global electronics power in its own right.