India in Supply Chain Restructuring: Seeking Growth Poles from the Gaps of China's Dominance

India in Supply Chain Restructuring: Seeking Growth Poles in the Cracks of China's Dominance

Reports of globalization's death have been greatly exaggerated. A 2025 report by Rhodium Group, *China and the Future of Global Supply Chains*, shows that even after trade frictions and pandemic shocks, China's share of global production and exports has continued to rise—a result of assertive industrial policy combined with domestic overcapacity. But this does not mean global supply chains are frozen. On the contrary, driven by policy, diversification and regionalization are quietly taking place, and India is at the center of this restructuring vortex.

China Has Not Declined; Pressure Is Merely Intensifying

The report reviews the evolution of four major industries over the past decade: apparel, consumer electronics, photovoltaics, and automobiles. China's global market share increased in all four sectors, most notably at the expense of Germany and Japan. Meanwhile, South Korea, Central Europe, and Mexico have shown relative resilience, aided by U.S. policy over the past seven years. India, along with Vietnam, has made significant progress in consumer electronics assembly.

The key to China's ability to maintain its advantage amid rising costs and higher trade barriers lies in its unrivaled "ecosystem efficiency." Low labor costs are no longer the only factor; the synergy between production and logistics, the completeness of infrastructure, and the vast upstream supplier base make it difficult for many multinationals to simply leave even when facing tariffs. This is precisely the first wall that India's manufacturing push faces in attracting foreign investment: China's export competitiveness is not based on any single factor but is systemic.

Diversification Is Not a Natural Market Choice but a Policy Product

Notably, despite rising factor costs in China, the real momentum for diversification has come from policy. The U.S. Inflation Reduction Act (IRA) and tariff measures have forced photovoltaic supply chains to move out of China; government incentive policies in Vietnam and India have spurred large-scale investment in electronics assembly. The report states clearly: "Policy has become the core driver of diversification outcomes."

This offers an important lesson for India: it cannot rely on natural market shifts but must actively attract these flows through proactive policy signals. India has already achieved initial results in mobile phone assembly through its Production-Linked Incentive (PLI) scheme, but the report also notes that these emerging hubs remain highly dependent on Chinese components. In other words, India still plays the role of "final assembly" in the chain, and to capture greater added value over the medium to long term, it must move into component production, design, and even R&D.

India's Opportunity: A Golden Window for Consumer Electronics

Among the four industries, consumer electronics is the only area where China's share has declined—not just in final assembly but also in upstream segments. This opens unprecedented space for India. The report assesses that unless the United States imposes high tariffs on both Vietnam and India simultaneously, the mobile phone assembly boom in the two countries will continue and could further drive the relocation of product lines such as laptops.But India's opportunity does not automatically equal victory. Vietnam has concentrated diversified manufacturing capacity, yet already faces pressure on labor, energy, and logistics; suppliers have even been asked to "diversify beyond Vietnam." This is a double-edged signal for India: on one hand, India has the chance to become the next dispersal node; on the other, if India cannot quickly build sufficient ecosystem support, this shift may be short-lived, or turn to Mexico, Central Europe, and elsewhere.

De-risking technology is even harder: a wake-up call for the auto industry

The auto industry has just become another export growth pole for China. From a net importer in 2022, China has become a major global exporter of complete vehicles and parts. Leveraging its first-mover advantage and huge subsidies in electric vehicles, it is beginning to disrupt the regionalized structure of traditional automotive supply chains. For India, China's strong rise in the automotive sector is both a competitive pressure and a geopolitically sensitive point.

The report mentions that Beijing has asked Chinese automakers to reduce technology transfer and investment in countries like India, and even restrict the outflow of key EV technologies. This means India cannot rely on Chinese capital and technology to boost its automotive manufacturing; instead, it needs more independent R&D or cooperation with Japanese, South Korean, European, and American companies. The auto industry is a major source of employment globally, and India, as an emerging market, must be prepared for a protracted struggle in this field.

Vietnam's lesson: don't let concentration become a new risk

The reality of supply chain diversification is that most relocated capacity has flowed to Vietnam, and many Chinese "going global" companies also prefer Vietnam. This has created a "super concentration" in multiple industries in Vietnam. In the short term, this concentration brings economies of scale, but in the long run it may trigger scrutiny from governments in export destinations, infrastructure overload, and potential political risks. The report clearly states that this concentration will become a weakness in the future.

India will naturally consider its own positioning. Compared with Vietnam, India has a larger domestic market, a huge engineer population, and a more complete industrial base, but it still has shortcomings in labor flexibility, power supply, and administrative efficiency. If India can ease these bottlenecks, it is expected to become an indispensable link in the diversification chain, rather than just another "fallback option."

Structural conclusion: India must transform from a "substitute" to a "node"

The Rhodium Group report conveys a key message: global supply chains have not left China, but rather have formed a protective belt around China's periphery. India's opportunity lies not in replacing China, but in becoming a new core node in the global production network—a node that can offer greater technological depth than Vietnam and greater political acceptability than China.

To achieve this, India needs not just more subsidies and tariff protection, but a systematic upgrade of manufacturing capabilities: ensuring localization from components to design, from assembly to R&D. In this process, the participation of Chinese enterprises could be either a bridge or a trap. India should anchor itself in market rules and its own national strategy, seeking a balance between cooperation and competition.The window for supply chain restructuring may only be five to ten years. Whether India can secure a place in the global manufacturing landscape of the "post-China era" depends on today's policy choices and execution efficiency. This is both an economic challenge and a strategic opportunity.