A Strategic Alliance in Motion: Can India Replace China as the World’s Factory?

Introduction: A Critical Moment in U.S.-India Relations

Amid escalating tensions between the United States and China, economic ties between Washington and New Delhi are gaining momentum. The recent visit of U.S. Vice President J.D. Vance to India, during which he met with Prime Minister Narendra Modi, underscored a mutual willingness to accelerate talks for a comprehensive bilateral trade agreement. As the U.S. seeks to reduce reliance on Chinese manufacturing, one key question emerges: Can India fill China’s shoes as the next global production hub?

Trade Agreements: From Planning to Implementation

In recent years, U.S.-India trade has expanded steadily, reaching $129 billion in 2024. India posted a trade surplus of $45.7 billion, and both governments have declared a goal of increasing bilateral trade to $500 billion by 2030. The temporary suspension of a 26% tariff imposed in April — a move led by the Trump administration — signaled renewed openness for strategic negotiations.

According to U.S. Trade Representative Jamieson Greer, “There is a serious lack of reciprocity in the trade relationship with India,” but he also acknowledged India’s constructive engagement. Washington’s message is clear: India is not just a trade partner — it’s a potential strategic counterbalance to Beijing.

India as a China Alternative: Strong Potential, but Not Yet a Match

India offers clear competitive advantages: a massive, low-cost labor force, government policies that encourage foreign direct investment, and a declared ambition to become a global manufacturing powerhouse. Major corporations such as Apple, Tesla, and Foxconn have already begun setting up production lines in India, with some iPhone assembly expected to be fully relocated there by 2026.

However, India still lags behind China in key areas like infrastructure, industrial productivity, and logistical coordination. These structural gaps continue to hinder a full-scale shift in global supply chains from China to India.

India’s Cost Advantage: Low Wages, But Limited Efficiency

Industrial wages in India are significantly lower than in China — roughly $210–260 per month compared to $870–1,000 in China. This 70%+ cost advantage gives India a clear edge in labor-intensive manufacturing. However, China still enjoys higher productivity levels due to superior infrastructure, advanced worker training, and operational efficiency. In short: India is cheaper, but not yet as effective.

Looking Ahead: A Strategic Window of Opportunity

In an era of tightened U.S. export controls on advanced tech to China, rising tariffs, and a race for supremacy in AI and advanced manufacturing, India appears to be the next logical destination. With incentive programs like the Production Linked Incentive (PLI) scheme and increased investment from multinational corporations, India is building industrial momentum.

Yet becoming a true manufacturing alternative to China is a long-term strategic endeavor. Only with sustained investment in infrastructure, vocational training, and regulatory efficiency can India evolve into a competitive, scalable, and reliable manufacturing center.