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By Alpha Research
Sep 30, 2026
India now makes more than 99% of the mobile phones it sells. It keeps roughly 18–20 paise of every rupee of value in them. In China, the figure is around 40. That gap is the manufacturing debate in miniature.
Export growth, factory announcements and production-linked incentives tell you how much India is making. They do not tell you who is being paid for it. Every rupee of manufactured output splits in two: one part leaks abroad to pay for imported components, machinery and technology; the other stays home as wages, profits, taxes and the revenues of domestic suppliers. Investors who never ask which is which end up owning the headline and missing the economics.
The timing makes the question urgent. India's economy grew 7.8% year on year in April–June 2026 (released 31 August), well ahead of expectations. On 23 September, four global agencies raised their FY27 forecasts: S&P Global Ratings to 7.0% from 6.6%, Fitch Ratings to 6.9% from 6.4%, the Asian Development Bank to 7.0% from 6.6%, and the OECD to 7.1%. Moody's had lifted its estimate to 7.0% a week earlier. Composition matters more than the number: investment, resilient consumption, and manufacturing are driving growth amid higher energy costs and weaker global trade. Though none of the four expects the pace to last. S&P and Fitch both see momentum fading in the second half, citing a below-normal monsoon, firmer inflation, and a likely RBI rate increase.
The manufacturing opportunity is real, but it is not one theme. India has tried to industrialise before. What is different now is the convergence of supply-chain diversification, trade agreements, support for strategic industries, better infrastructure, and Indian companies building capability beyond basic assembly. Manufacturing contributed about 14.3% of gross value added in FY23, while services still dominate. Manufacturing is therefore an additional engine of growth and productivity, not a replacement for the existing one.
Between April and August 2026, merchandise exports grew 17.9% to US$215.9 billion (Ministry of Commerce and Industry), and total exports, including services, reached about US$399.3 billion. Electronics rose 89.8%, engineering goods 24.9%, chemicals 16.4%, and cotton yarn, fabrics, and made-ups 13.8%. Extrapolate with care: electronics started from a small base, and tariff uncertainty may have pulled some shipments forward.
The better question is not how fast exports are growing. It is how much of each export rupee stays in India.
India's electronics industry shows how the opportunity evolves. The first phase was about attracting assembly, and it worked: more than 99% of the phones sold in India are made there, and imports of finished phones have fallen sharply. The next phase is about building a domestic supply chain. The Electronics Component Manufacturing Scheme approved projects worth about ₹41,863 crore in January 2026, targeting output of ₹2.58 lakh crore, with companies including Tata Electronics, Foxconn and Samsung. Yet domestic value addition of 18–20%, against roughly 40% in China, shows how much of the phone is still made elsewhere. For investors, that means the opportunity extends well beyond the headline manufacturers. A large electronics ecosystem creates demand for:
This is the second-order opportunity. Apple's training programmes across its Indian supplier network, covering digital literacy, robotics, automation and smart manufacturing at more than 25 supplier sites in 2026, point the same way: the lasting value of multinational investment is not the factory but the transfer of skills, processes and supplier capability. That transition will take time.
Semiconductors are an even more strategic layer. India has approved 12 fabrication and packaging projects and 24 design projects, including facilities involving Micron, Tata Electronics and CG Power. The Semicon 2.0 programme, with an announced outlay of ₹1.275 lakh crore, widens the focus across design, packaging and the wider ecosystem. Geopolitics now shapes these decisions alongside conventional economics: supply-chain diversification, strategic autonomy and concentration risk all count.
But be careful with the phrase “China+1”. It does not mean China replacement. A large share of the equipment, materials and capital goods needed to make chips still comes from China, Japan, Korea, the US and Europe. India is relocating parts of the value chain while depending heavily on imported technology and capital equipment. That is a normal stage of industrial development, but it means investors must separate capacity creation from domestic value capture. The key question is which parts of the chain India can compete in, and how quickly domestic suppliers can move up it.
Electronics has scale and low domestic content. Textiles is close to the reverse. India has raw materials, labour and long-standing capability, and much of the chain from cotton to garment is domestic, so more of each export rupee stays home. What India lacks is scale: textile and clothing exports are about US$37 billion, against about US$292 billion for China. The UK–India CETA, in force since July 2026, improves tariff access for several Indian exports, and August 2026 textile exports rose 16.1%, with cotton textiles up 18%. But Indian manufacturers compete on more than labour cost: logistics, shipping, tariff structures, productivity, compliance, delivery speed and rules of origin all matter, and Vietnam, Bangladesh and Mexico remain formidable competitors for relocating supply chains. Here the rupee is kept; the contest is over whether there is enough of it to keep.
One cannot miss the infrastructure under the factory. Manufacturing investment rarely stops at the factory gate. Every new plant needs electricity, transmission, industrial real estate, logistics, cooling, networking, construction and digital infrastructure. Data centres show the pattern. By mid-2026, operational capacity across seven major Indian markets was about 1.8 GW, with roughly 10 GW expected over the next five years. The opportunity extends beyond the operators to the companies supplying power equipment, transmission, cooling, construction, cabling and networking. These layers also tend to keep more of the rupee.
Power, construction and industrial real estate are largely rupee-denominated businesses, though not entirely: the servers and chips inside a data centre are imported. Hence the most attractive way to join a manufacturing cycle may not be to own the manufacturer. The suppliers of essential infrastructure and equipment may have more predictable economics, broader customer bases or stronger moats.
India's defence exports reached a record ₹38,424 crore in FY26, more than triple the previous year, with private companies accounting for 45.2%. What makes aerospace and defence interesting for investors is qualification. Once a supplier is integrated into an OEM's chain and has passed lengthy certification, switching becomes difficult. The advantage rests not on low cost but on certification, reliability and embedded relationships. Automotive components, industrial machinery and medical devices work the same way. Sticky revenue is one way of keeping the rupee.
Currency is where the question becomes arithmetic. A weaker rupee is usually seen as good for exporters because it makes Indian goods cheaper abroad. But the benefit depends on import content. In electronics, with only 18–20% domestic value added, a depreciation that lifts export prices also lifts the cost of imported components. The gain accrues disproportionately to companies with higher domestic value addition. So examine each business's import content instead of assuming “weak rupee = export winner”.
My dear readers, India's manufacturing opportunity is best understood as a value chain rather than a collection of sectors. The obvious beneficiaries, manufacturers and exporters, are only the first layer. Beyond them lie components, machinery, power, transmission, logistics, industrial real estate, and digital infrastructure.
Resist the temptation to buy the whole chain indiscriminately. Before buying any link, ask:
The objective is not to make a generic “India manufacturing” allocation, but to separate the businesses that benefit from the theme from those that merely participate in the headline. A disciplined portfolio approach can identify the links in the value chain with stronger earnings visibility, better economics, sustainable competitive advantages and valuations that still leave room for upside.
The manufacturing cycle may create many winners. The investor's challenge is knowing which ones are worth owning, how much to own, and at what price.
Think value chains, not sectors
Best Regards
Dr. Tarunika Jain Agrawal, Ph.D.
Alpha Research
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