Mumbai, October 16, 2026: India now accounts for approximately 3% of global manufacturing output, with the country poised to benefit from the China+1 strategy as global supply chains diversify, according to a new report by Nitya Shah, smallcase manager and Co-Founder of KamayaKya Wealth Management. The report, titled “The Future of Manufacturing: India’s China+1 Opportunity,” highlights how European industrial challenges and India’s expanding manufacturing capabilities could create significant opportunities for Indian businesses in the coming decade.
Europe has announced 37 million tonnes of chemical capacity closures between 2022 and 2025, while Germany recorded 24,064 corporate insolvencies in 2025, its highest in 11 years. In contrast, India’s iPhone exports reached approximately ₹2 lakh crore in FY26, and gross foreign direct investment (FDI) rose 17% to US$94.5 billion, signalling growing momentum in the manufacturing sector.
China+1 strategy and sectoral opportunities
The China+1 approach, which involves global companies seeking additional manufacturing locations beyond China, is driving this shift. With China holding about 29% of global manufacturing and India at 3%, even a modest increase in India’s share could result in substantial growth. Sectors identified as key beneficiaries include specialty chemicals, pharmaceuticals, electronics, and auto components.
“The China+1 opportunity is not about replacing China overnight; it is about building resilient, diversified supply chains. India has the domestic market, engineering capabilities and manufacturing base to capture a larger share of global production,” said Nitya Shah, smallcase manager and Co-Founder, KamayaKya Wealth Management.
Europe’s industrial slowdown and India’s advantages
Europe’s manufacturing sector is under pressure from high energy and labour costs, with the chemical industry particularly affected—capacity closures between 2022 and 2025 represent about 9% of the region’s existing capacity. The report suggests these supply gaps could benefit Indian manufacturers, especially in sectors where they already have established capabilities and global customer relationships.
India’s strengths extend beyond cost competitiveness, with a large domestic market, a skilled talent pool in engineering and chemistry, and a strong industrial base in pharmaceuticals, chemicals, forgings, castings, and auto components.
Manufacturing growth and government incentives
Manufacturing currently makes up about 13% of India’s GDP, with the National Manufacturing Mission targeting a 25% share by 2035. In FY26, India recorded merchandise exports of US$441.8 billion, including US$122.4 billion in engineering goods and US$48 billion in electronics. Gross FDI rose to US$94.5 billion, up 17% year-on-year.
Production-linked incentive (PLI) schemes have attracted ₹2.16 lakh crore in investment across 14 sectors by December 2025, leading to cumulative production and sales of ₹20.41 lakh crore, exports of ₹8.3 lakh crore, and 14.4 lakh direct and indirect jobs. However, only ₹28,748 crore in incentives have been paid out against a total outlay of ₹1.91 lakh crore, indicating a need for more effective implementation.
Five sectors set to benefit
The report identifies five manufacturing segments where Indian companies are well-positioned:
Auto components and precision engineering: The industry recorded turnover of ₹7.6 lakh crore and exports of US$24 billion in FY26, with Europe as the fastest-growing export destination. German supplier ZF aims to quadruple India sourcing to €2 billion by 2030.
Pharmaceuticals and contract manufacturing: India’s contract research and manufacturing market is projected to nearly double from US$7.3 billion in FY23 to US$14.1 billion by FY28.
Specialty chemicals: Indian firms are expanding capacity to meet long-term contracts, though Chinese overcapacity may pressure commodity chemicals.
Electronics and semiconductors: iPhone exports reached ₹2 lakh crore in FY26, about three-quarters of India’s US$29.4 billion smartphone exports. Developments include semiconductor assembly and testing facilities, the Tata wafer fabrication project at Dholera, and a ₹40,000 crore electronics components scheme.
Defence and capital goods: Defence production hit ₹1.78 lakh crore in FY26, with exports up 63% to ₹38,424 crore, reaching over 80 countries.
Broader industrial investment and ongoing challenges
Private investment announcements nearly doubled to ₹14.6 lakh crore in the first half of FY26, boosting demand for infrastructure and industrial services such as logistics, capital goods, power equipment, and engineering services. However, challenges remain, including delays in land acquisition, high duties on imported inputs, uneven infrastructure, and continued dependence on China for critical components. India imports about 70% of its bulk drug ingredients and a significant share of electronic components from China.
The report concludes that India does not need to replace China to benefit from global supply-chain shifts. Increasing India’s share of global manufacturing from 3% to 5% would represent an expansion comparable to Mexico’s entire manufacturing sector. The report emphasises the importance of proven manufacturing capability and specialty manufacturing, as well as the role of suppliers to new factories in capturing the opportunity.
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