India’s China+1 Strategy: Lessons from States

21 Oct 2026

Tags: International Relations   Neighborhood   Bilateral border relations

Source: The Hindu

Context: A 2026 study by the East Asian Institute, National University of Singapore, based on 50 interviews with industry executives, policymakers and experts, highlights that India’s success in attracting China+1 investments depends significantly on State-level industrial ecosystems, particularly those of Tamil Nadu and Karnataka.

 

Understanding the China+1 Strategy

• China+1 Strategy: A business strategy in which companies diversify manufacturing and supply chains beyond China to reduce geopolitical, trade, and supply-chain risks while retaining some operations in China.

Tamil Nadu and Karnataka: Two Models of Industrial Growth

• Tamil Nadu: Its electronics manufacturing ecosystem builds on decades of investment in technical education, automobile manufacturing, component suppliers, skilled workers and administrative capacity. Foxconn employs tens of thousands of workers assembling iPhones at Sriperumbudur, while Tata Electronics has expanded at Hosur; in January 2026, the Centre approved ECMS projects involving mobile-phone enclosure units by Yuzhan Technology, a Foxconn-linked firm, and Tata Electronics. The State now seeks to move beyond labour-intensive assembly towards capital-intensive manufacturing and innovation-led exports, despite constraints involving land, power and labour, including dependence on migrant workers from northern and central India.
• Karnataka: Bengaluru’s software and engineering talent provided a different foundation for electronics manufacturing. Foxconn’s 300-acre campus at Devanahalli aims to create around 50,000 jobs, with women reportedly accounting for about 80% of its workforce. Tata Electronics acquired Wistron’s iPhone plant at Narsapura through a deal agreed in late 2023 and has expanded rapidly since.
• Importance of policy continuity: Investors emphasise that industrial commitments must be honoured despite political changes. Tamil Nadu’s change of government in May 2026 is testing this continuity. Its industrial base took four to five decades to develop and cannot be replicated merely through industrial parks or subsidies.

National Policy and State-Level Implementation

• Tariffs and Production-Linked Incentive (PLI) Scheme: Import duties combined with PLI incentives can improve domestic manufacturers’ competitiveness. The PLI scheme for large-scale electronics manufacturing ended on March 31, 2026, and the Union Cabinet approved a successor on July 15, 2026.
• Electronics Components Manufacturing Scheme (ECMS): In January 2026, the Centre approved 22 proposals worth ₹41,863 crore across eight States, expected to generate 33,791 direct jobs. The projects reflect the objective of geographically balanced industrial growth. These commitments, however, represent proposed investments rather than completed factories.
• Foreign investment policy: In March 2026, the Cabinet approved easing Press Note 3, introduced in 2020 to impose restrictions on investments from countries sharing a land border with India. Such national-level incentives can attract investors, but actual investment depends on State-level availability of land, reliable power, approvals, workers and suppliers.

FDI Rankings: An Important Data Limitation

• According to DPIIT data on FDI equity inflows between October 2019 and March 2026, Maharashtra accounted for 31%, Karnataka 21%, Gujarat 15%, Delhi 13% and Tamil Nadu about 6%, placing Tamil Nadu fifth.
• Limitation: DPIIT attributes FDI to the State where the receiving company has its head office, not necessarily where the investment is deployed. Therefore, these figures do not accurately indicate the geographical distribution of factories or manufacturing activity.

Challenges: From Assembly to Domestic Value Addition

• Weak domestic component ecosystem: India remains heavily dependent on China for major electronic components and supply chains. Although some firms have set ambitious domestic sourcing targets, actual sourcing takes time; one manufacturer achieved about $600 million against a $1 billion target after two to three years. Developing meaningful domestic value addition may require four to five years.
• Electronics trade imbalance: In 2025–26, electronics exports reached approximately $48 billion, while imports stood at around $116 billion. Strong exports therefore coexist with substantial import dependence, as many exported products contain relatively little domestically manufactured content—estimated by one executive at about 20%.

Regional Imbalance in Industrial Development

• Concentration of investment: Industrial growth is concentrated largely in southern and western India, with less progress in populous States such as Bihar, Chhattisgarh and Jharkhand.
• Limits of subsidy-led expansion: Distributing incentives across more States will not automatically reproduce Tamil Nadu’s supplier networks or Karnataka’s technical workforce. States must develop land infrastructure, train workers, streamline approvals, nurture local suppliers and retain investors; some capabilities can be replicated through policy, while others depend on decades of accumulated industrial capacity.

Way Forward

• Adopt State-specific industrial strategies: Identify each State’s comparative advantages and build manufacturing clusters around existing skills, infrastructure and supplier networks rather than following a uniform national model.
• Deepen domestic value chains: Move beyond final-product assembly by strengthening component manufacturing, supplier development, technical skills and innovation to reduce import dependence.
• Ensure predictable governance: Maintain policy continuity, timely approvals and reliable infrastructure while improving the participation of less-industrialised States in manufacturing-led growth.