India stands to capture a substantially larger share of global manufacturing as multinational companies accelerate supply-chain diversification away from China, with the momentum reinforced by production-linked incentive (PLI) schemes and surging exports, according to a new report released on Friday, 16 October 2026. The findings from investment platform smallcase underscore a structural inflection point for Indian industry, one that analysts say could reshape the country's economic trajectory over the coming decade.

The Scale of the Opportunity

China currently accounts for approximately 29 per cent of global manufacturing output, while India's share stands at around 3 per cent. The report argues that even a modest reallocation of global production capacity in India's favour could translate into a significant expansion of domestic industrial activity. The China+1 strategy — through which companies build manufacturing capacity outside China as a hedge against geopolitical and supply-chain risk — is creating openings for India across specialty chemicals, pharmaceuticals, auto components, and electronics.

Nitya Shah, smallcase manager and Co-Founder of KamayaKya Wealth Management, said the confluence of European capacity closures, global supply-chain diversification, and India's expanding manufacturing capabilities 'could create a substantial opportunity for Indian businesses over the coming decade.' Shah cautioned, however, that 'translating this potential into sustained growth will depend on improving infrastructure, reducing input costs and ensuring faster execution of industrial policies.'

Europe's Industrial Retreat Opens New Doors

Europe announced closures of 37 million tonnes of chemical capacity between 2022 and 2025, while Germany recorded 24,064 corporate insolvencies in 2025 — its highest annual tally in 11 years. Elevated energy costs and labour expenses have squeezed European industrial competitiveness, with chemical production and plant utilisation visibly weakening. As Europe's industrial base retreats, Indian manufacturers with established capabilities in chemicals, pharmaceuticals, forgings, castings, and auto components are increasingly being evaluated as credible substitutes by global buyers.

India's Export Momentum and FDI Surge

Concrete data points reinforce the report's thesis. India's iPhone exports reached approximately ₹2 lakh crore in FY26, a figure that signals the country's growing role in high-value electronics manufacturing. Gross foreign direct investment (FDI) rose 17 per cent to $94.5 billion over the same period. India recorded total merchandise exports of $441.8 billion in FY26, including $122.4 billion in engineering goods and $48 billion in electronics — marking strong year-on-year progress across key export categories.

The GDP Gap and the 2035 Target

Manufacturing currently contributes approximately 13 per cent of India's GDP, well below the National Manufacturing Mission's target of 25 per cent by 2035. The report notes that India's large domestic market, deep engineering and chemistry talent pool, and established pharmaceutical and chemicals base provide the foundation for more complex, higher-value manufacturing — but closing the GDP gap will require sustained policy execution. This is the context in which the China+1 tailwind is arriving: a country with genuine industrial assets but a historically inconsistent track record of converting external opportunity into structural gain.

What Needs to Happen Next

Analysts and industry bodies have consistently flagged infrastructure bottlenecks, logistics costs, and the pace of regulatory approvals as the primary barriers to India fully absorbing the China+1 dividend. The report echoes these concerns, stressing that policy intent must be matched by faster on-ground execution. With global supply-chain realignment still underway, the window to position India as a preferred manufacturing destination remains open — but it is not indefinite.