In April 2025, the Trump administration imposed broad tariffs under IEEPA on nearly all trading partners. In February 2026, the Supreme Court ruled 6-3 that IEEPA does not authorise tariffs, striking down the broadest measures. What remains — Section 232 tariffs on steel and aluminium, Section 301 tariffs on Chinese goods, and new Section 122 measures — still represents the highest average US tariff burden since 1947.

For US companies with manufacturing in China or contemplating where to build next, the tariff environment reinforces a structural question the numbers were already raising: is the China-only supply chain the right model for the decade ahead?

India is not a perfect answer to that question. But for a specific set of sectors and company profiles, it is a genuinely compelling one — and the window for first-mover advantage is narrowing.

The Tariff Arithmetic — What's Actually Changed

Section 301 tariffs on Chinese goods across electronics, machinery, medical devices, and industrial components range from 7.5% to 25% and are effectively permanent. The China tariff trajectory is structurally upward. India's trade relationship with the US is actively negotiating — a bilateral framework is being discussed. The directional bet matters as much as the current number.

The China-Plus-One Shift — Where India Fits

India's advantage is not labour cost versus Vietnam — they are comparable at entry level. India's advantage is the combination of:

Scale of domestic market. India is now the world's most populous country and the fourth-largest economy. Manufacturing in India for the Indian market eliminates export logistics entirely. No country offers a comparable combination of manufacturing cost competitiveness and a 1.4-billion consumer market.

Technical talent depth. India's engineering graduate output — approximately 1.5 million per year — is unmatched. For manufacturing requiring engineering integration, quality systems, or R&D adjacency (electronics, pharmaceuticals, precision engineering, automotive), India's talent depth is a structural advantage Vietnam and Mexico don't have.

PLI scheme incentives. India's Production-Linked Incentive schemes offer cash incentives of 4-10% of incremental sales for 5-6 years across 14 sectors. As of 2025, PLI schemes attracted US$21 billion in realized investments and generated over $190 billion in production output. Mobile phone exports alone grew 8x to $23 billion under PLI.

Semiconductor and electronics component ecosystem. In March 2025, India approved a US$2.75 billion PLI scheme for electronic components — multi-layer PCBs, display modules, lithium-ion cells, camera modules. By October 2025, component makers had committed $13.6 billion across 249 applications. The ecosystem gap that made India uncompetitive for electronics in 2020 is closing fast.

The Sectors Where India Manufacturing Makes Sense Now

Electronics and smartphones — strong case. Apple has 64 suppliers in India. iPhone assembly by Tata and Foxconn is expanding rapidly. The PLI for electronics components (2025) is specifically building the supply chain depth that smartphone assembly exposed as a gap.

Pharmaceuticals — exceptional case. India is already the pharmacy of the world — 20% of global generic drug supply. PLI participants shifted India from a net importer of bulk drugs (₹1,930 crore deficit in FY22) to a net exporter (₹2,280 crore surplus in FY25).

Automotive and EV — strong and growing. PLI schemes for EVs, advanced chemistry cells, and auto components are driving significant investment. The Chennai-Pune-Aurangabad corridor has deep automotive manufacturing infrastructure.

Textiles and apparel — viable but competitive. India competes with Bangladesh and Vietnam here. PLI for textiles is delivering but more slowly. A viable choice but not the strongest relative to alternatives.

Renewable energy and solar — excellent case. PLI for high-efficiency solar PV modules has committed ₹48,120 crore in investments generating 38,500 direct jobs. India's ambition to reduce Chinese solar dependency combined with US IRA incentives for non-Chinese supply chains creates a genuine opportunity.

Semiconductors — early stage, high potential. India has approved 10 semiconductor projects under the India Semiconductor Mission. This is early infrastructure — not a near-term manufacturing option, but an important signal of policy direction.

What Setting Up Manufacturing in India Actually Involves

Entity structure. A foreign company manufacturing in India must establish a Private Limited Company (WOS). 100% FDI is permitted under the Automatic Route in most manufacturing sectors. Incorporation takes 4-6 weeks through MCA's SPICe+ portal.

FDI compliance. Every equity investment from the US parent must be reported to RBI within 30 days via FC-GPR filing on the FIRMS portal. Annual FEMA reporting (FLA return) is required by 15 July.

Transfer pricing. The intercompany relationship — supply of raw materials, purchase of finished goods, management fees, IP licensing — must be structured at arm's length and documented annually via Form 48 (formerly Form 3CEB) by 31 October.

PLI application. Companies must apply through the relevant ministry, meet investment and production thresholds each year of the incentive period, and file annual verification returns. PLI incentives are not automatic — they require proactive application and ongoing compliance.

State-level incentives. Tamil Nadu, Karnataka, Telangana, Maharashtra, Gujarat, and Andhra Pradesh all offer additional incentives: subsidised land, power cost support, stamp duty exemptions, and expedited clearances.

The Honest Counterarguments

Logistics. India's logistics costs as a percentage of GDP (~13-14%) are higher than China (~10%). Container connectivity is improving but remains less frequent than China's major ports. This matters more for time-sensitive exports.

Land acquisition. Outside industrial parks and SEZs, land acquisition can be lengthy. Industrial parks significantly simplify this — most PLI-backed projects are in established park locations.

Regulatory complexity. India has improved substantially on Ease of Doing Business metrics, but the regulatory stack (factories act, pollution control clearances, labour law filings) remains more complex than China's SEZs. A local compliance partner from Day 1 is essential.

Our Ex-Big 4 CA team advises US and global companies on India manufacturing entry — entity incorporation, PLI structuring, FDI compliance, transfer pricing, and state incentive navigation. Book a free 30-minute consultation — our team responds within 1 business day.

Frequently Asked Questions
What is the PLI scheme and how does a US company access it?+
The Production-Linked Incentive scheme offers financial incentives of 4-10% of incremental sales over a base year for 5-6 years, across 14 sectors. To access it, a company must apply through the relevant ministry (MEITY for electronics, DPIIT for most other sectors), meet minimum investment thresholds in each incentive year, and file annual production verification returns. PLI incentives are not automatic — they require formal application before investment begins, not after.
Does a US company need government approval to manufacture in India?+
For most manufacturing sectors, no. 100% FDI is permitted under the Automatic Route — no prior government approval required. Government Route approval is only needed for defence manufacturing above 74%, specific multi-brand retail, and a small number of other regulated sectors. A sector eligibility check before committing capital is essential.
How does India compare to Vietnam for manufacturing?+
Labour costs at entry level are comparable. India's advantages over Vietnam: a 1.4-billion consumer domestic market (Vietnam has 97 million people), significantly deeper engineering talent for R&D-adjacent manufacturing, PLI incentives with no equivalent in Vietnam, and English as a business language. Vietnam's advantages: established manufacturing ecosystem for light manufacturing and textiles, stronger existing export logistics infrastructure, lower land costs outside metro areas. The right choice depends heavily on your specific product, supply chain requirements, and whether you are primarily manufacturing for export or for the Indian market.
What entity structure should a US manufacturer use in India?+
A Private Limited Company (Wholly Owned Subsidiary) is the right structure for virtually all manufacturing use cases. It allows 100% FDI under the Automatic Route, can generate revenue from Day 1, is eligible for PLI schemes, and is the structure state governments recognise for incentive purposes. Branch Offices (taxed at 40% on profits) and Liaison Offices (no revenue permitted) are not suitable for manufacturing operations.
How long does India manufacturing entity setup take?+
Incorporation via SPICe+: 7-12 working days from document submission. Parent company documents need apostilling first — allow 3-5 days. Bank account opening: 2-4 weeks after incorporation. GST registration: 1-2 weeks. First operational month including payroll: 6-8 weeks from engagement. PLI application must be submitted before investment is made — run this in parallel with entity setup, not after.
What are the main transfer pricing obligations for a US-India manufacturing structure?+
All intercompany transactions — transfer of raw materials, purchase of finished goods, management fees, IP royalties — must be priced at arm's length. An Intercompany Agreement must be in place before transactions begin. A formal Transfer Pricing Study must be prepared annually and certified by an Indian Chartered Accountant via Form 48 (formerly Form 3CEB), filed by 31 October of each tax year. Transfer pricing is the most common and highest-value audit risk for foreign-owned India manufacturing entities.
Can a US company in India benefit from the India-US tax treaty?+
Yes. The India-US DTAA reduces withholding tax on dividends (15-25% vs 20% domestic), interest (15% vs 20%), and royalties (15% vs 20%) on payments from India to the US parent. To claim treaty benefits, the US entity must hold a valid Tax Residency Certificate from the IRS and file Form 41 (formerly Form 10F under the old Income Tax Act) with the Indian withholding agent before the first payment. This must be renewed annually.
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