India is emerging as a manufacturing base for foreign companies, but selectively, and the distinction matters. It is not yet a wholesale replacement for any single supply chain; it is winning real share in electronics, mobile phones, auto components and electric-vehicle supply, renewables, semiconductors, pharmaceuticals and a handful of other sectors, on the back of scale, talent and a deliberate incentive push. For a foreign manufacturer the question is therefore not whether India is the next anything, but whether a specific product line can be entered, structured and supported there profitably. This guide maps the decisions that answer it: the entity, the incentives, the supply chain and the tax.
At a glance
- manufacturing FDI rose to roughly USD 22 billion in 2025, up about a third, and is growing faster than services FDI;
- the usual entity is a wholly-owned company, with joint ventures and contract manufacturing as real alternatives;
- the PLI schemes span 14 sectors and have drawn over INR 2.16 lakh crore of committed investment;
- the section 115BAB 15% manufacturing tax rate has sunset, so a new manufacturer generally pays the ordinary regime;
- incentives are not automatic: qualifying, claiming and the supply-chain and tax structuring decide the economics.
Is India a manufacturing hub now? Selectively, yes
The evidence points one way, with a qualification. Manufacturing FDI climbed to around USD 22 billion in 2025, roughly a third higher than the year before, and for the first time in many years manufacturing is drawing foreign capital faster than services. Electronics has moved from India's seventh-largest export category to its third in a few years, with Apple assembling on the order of USD 22 billion of iPhones in the country in a single year, and Samsung and Foxconn deepening their footprints. Semiconductor fabrication, long talked about, is now under construction, and battery and component capacity is being built behind it.
The qualification is that this is sectoral, not universal. India is competitive today in electronics and mobiles, auto components and EV supply, solar and renewables, semiconductors and advanced components, pharmaceuticals and medical devices, and technical textiles, among others, and far less so elsewhere. For a foreign manufacturer the right question is whether its specific product fits one of these waves, because the incentives, the supply chain and the realistic timeline all depend on the sector rather than on the country in the abstract.
The sectors leading the shift
It helps to be concrete about where the activity actually is, because the incentives, the supply chain and the realistic ramp differ by sector.
The practical reading is that a foreign manufacturer should test its own product against this map first. A fit with one of these waves means real incentive support and a developing supplier ecosystem; a product outside them faces a thinner case that structuring alone will not fix.
The decisions you actually make
1. The entity and operating model
Whether to build a wholly-owned plant, enter a joint venture with a local partner, or use contract manufacturing. The choice turns on control, technology transfer, speed and how much capital you put on the ground, and it is covered in the entity-and-model piece. Most foreign manufacturers use a wholly-owned company, but a joint venture can be the right answer where a local partner brings land, licences or market access, and contract manufacturing can be the asset-light way in.
2. The incentives
India's production-linked incentive schemes, alongside state subsidies and the SEZ regime, can change the economics of a plant, but they are conditional and sector-specific. The PLI-and-incentives piece covers which sectors qualify, whether a foreign company can claim, and why approval is not the same as receiving the money.
3. The supply chain and the China+1 question
For many entrants India is part of a diversification away from a single-country supply chain rather than a clean relocation. That raises questions of dual sourcing, supplier localisation, value-addition and export readiness, and a specific regulatory point about investment from land-border countries. The China+1 piece works through it.
4. Tax, transfer pricing and FEMA
The corporate-tax position, the FEMA route for inbound investment, customs duties on imported inputs and the transfer pricing of related-party purchases and royalties together decide the net economics. The tax piece covers them, including the important point that the 15% concessional manufacturing rate has sunset.
The build, in sequence
A manufacturing entry runs as a sequence, and the long-lead items are physical. In outline: incorporate the entity and settle the FEMA route; secure land or a built facility, with the environmental and other clearances that manufacturing requires; register for the chosen incentive, PLI, a state scheme, or an SEZ unit, where relevant; build out the plant and the supply chain, deciding what is made in-house and what is sourced; put the transfer-pricing policy and the intercompany terms in place; and commission and ramp. Land, clearances and the incentive application are the items that most often gate the timeline, and they are best run in parallel from the start.
The economics, in shape
The case for an India plant is built from a few moving parts, and the incentive is only one of them. On the cost side sit labour, land and build-out, and imported inputs, where the customs-duty position, and any inverted-duty problem where inputs are taxed more heavily than finished goods, can quietly erode margin. Against that sit the talent and scale advantage, the PLI or state incentive where the product qualifies, and the export logic. The tax on the profit then applies at the ordinary corporate rate, because the 15% concessional manufacturing rate has lapsed for new entrants. A sound business case nets the incentive and the cost advantage against the duty and tax position, rather than leaning on the incentive headline alone.
Who it suits
It suits a foreign manufacturer in one of the sectors where India is genuinely competitive, with enough volume and time horizon to justify building or partnering rather than simply importing. It suits a group diversifying its supply chain and wanting an India node. It is less suited to a product with no local demand, no export logic and no incentive support, where the honest answer may be to keep importing. A clear-eyed sector and product fit is the first test, before any structuring question.
Where this goes wrong
- Banking on the 15% tax rate. The section 115BAB concessional manufacturing rate has sunset for companies that did not commence by 31 March 2024; a new entrant generally pays the ordinary regime and should model on that basis.
- Treating PLI as automatic. The schemes are conditional and the money follows production and claim, not approval; the economics should not assume it.
- Missing the land-border rule. Investment from countries sharing a land border with India needs government approval, which matters for some China+1 and component-supplier structures.
- Underpricing related-party imports and royalties. Manufacturing transfer pricing on imported components and technology fees is closely examined; getting it wrong invites adjustment.
- Ignoring inverted duties. Customs duty that is higher on inputs than on finished goods can quietly erode a plant's economics if not planned for.
How ATB Corporate helps
We structure manufacturing entries for foreign companies end to end: the entity-or-joint-venture-or-contract decision, the FEMA route and any land-border approval, the incentive strategy across PLI, state schemes and the SEZ regime, the customs and transfer-pricing position, and the supply-chain and repatriation structuring. The aim is a plant whose incentives are claimable and whose economics survive the tax position, not a business case built on a headline that has lapsed.
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FAQ
Is India really a manufacturing hub now?
Selectively, yes. Manufacturing FDI rose to about USD 22 billion in 2025 and India is winning real share in electronics, mobiles, auto and EV components, renewables, semiconductors and pharmaceuticals, among others. It is sector-specific rather than universal, so the right question is whether your product fits one of these waves.
What entity should a foreign manufacturer use?
Usually a wholly-owned company, with a joint venture where a local partner brings land, licences or market access, and contract manufacturing as an asset-light alternative. The entity-and-model piece works through the choice.
Do foreign manufacturers get a 15% tax rate?
Generally no longer. The section 115BAB 15% rate for new manufacturers applied only to companies that commenced manufacturing by 31 March 2024; that window has closed, so a new entrant typically pays under the ordinary regime. The tax piece covers the current position.
Can foreign companies claim PLI?
Yes, through an Indian manufacturing entity that meets the sector's eligibility and investment thresholds; foreign-linked manufacturers are among the beneficiaries. But approval is not the same as receiving the incentive, which follows production and a compliant claim.
Does investment from China need approval?
Investment from countries that share a land border with India requires government approval under Press Note 3, which is relevant to some China+1 and component-supplier structures. The China+1 and tax pieces cover it.
Key references
DPIIT FDI data and Make in India policy; Income-tax Act sections 115BAB and 115BAA; FEMA (Non-Debt Instruments) Rules and Press Note 3 (2020); PLI scheme data (PIB / Invest India); SEZ Act and section 10AA.
This article is general information and not tax or legal advice. Laws and IFSCA rules change, and positions should be confirmed for your specific circumstances before being relied upon.