This article was co-authored with Stefan Halusa, former Director General of the Indo-German Chamber of Commerce, and Mauritz Halusa, co-founder of Halusa Advisors.

How U.S. supply chains can leverage India, and which developments will shape the decisions ahead

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India is becoming increasingly important for U.S. supply chains

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When India is discussed, the first number usually mentioned is its growth rate. At 7.6 percent in the current fiscal year, the country is growing faster than any other major economy, while a GDP of around $4.1 trillion has made it the world’s fourth-largest economy. For assessing a sourcing or manufacturing location, however, that figure alone says relatively little. The more important question is where the growth comes from, because that determines how resilient it is and what it means for U.S. companies.

This is where India differs from other growth stories, most notably China’s. China’s rise in the 2000s was heavily export-driven and therefore dependent on demand from the United States and Europe, whereas India’s growth is more domestically driven. With around 1.4 billion people, a median age of 29, an expanding middle class and years of infrastructure investment generating additional demand, the country has a domestic market capable of sustaining a much larger share of its own growth. That does not make India immune to the global economic cycle, but it does make it less dependent on individual export markets.

For U.S. companies, India is no longer merely a potential sourcing market. The commercial relationship has already reached a significant scale. U.S. trade in goods and services with India totaled an estimated $239.6 billion in 2025, up 12.1 percent from the previous year. U.S. goods imports from India alone reached $103.8 billion, an increase of 18.9 percent in a single year.

The strategic significance goes beyond trade volumes. For companies trying to reduce concentrated exposure to China without simply reshoring every stage of production to the United States, India offers an unusual combination: lower operating costs, an increasingly capable industrial base, access to engineering talent and one of the world’s largest domestic markets.

That combination also showed up in our own research. In a September webinar survey of predominantly European procurement and industrial professionals, half of respondents said their companies already source from India, 29 percent sell into the country and 18 percent manufacture there. The industrial focus was particularly pronounced: 74 percent saw India primarily as a sourcing market for tooling and metal and plastic components.

Cost remains the most immediate attraction. Among our respondents, 69 percent cited factor-cost and price advantages as a reason to engage with India, followed by access to the growth market at 51 percent and diversification away from concentrated China exposure at 40 percent. A skilled employee in India costs between $17,000 and $34,000 per year, and although wages are rising by nine to ten percent annually, currency movements have recently offset part of that increase for foreign buyers.

A long-term business case should not depend on that combination of factors, however. Favorable exchange rates are temporary; productivity, supplier capability and the depth of the local industrial ecosystem are structural. That distinction becomes particularly important for U.S. companies deciding whether India should simply replace individual Chinese suppliers or assume a much larger role in their global value chain.

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India is not an American ally in the conventional sense

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For U.S. companies, one of the more difficult questions is geopolitical reliability. India is increasingly important to Washington, particularly as the United States seeks to strengthen supply chains and strategic relationships across the Indo-Pacific. But treating India as another Japan or Australia would mean misunderstanding how New Delhi approaches foreign policy.

India is less interested in joining one geopolitical camp than in preserving its ability to work with several of them simultaneously. Companies that understand this can plan around it; those expecting India to align consistently with U.S. foreign-policy priorities are likely to be disappointed.

Geography explains much of this approach. India shares disputed borders with both China and Pakistan, while its wider neighborhood, from Bangladesh to Myanmar, remains politically unsettled. An exclusive commitment to one power bloc would therefore come with substantial strategic costs by reducing India’s room for maneuver with other partners.

Over the decades, this necessity has developed into a foreign-policy doctrine commonly described as multi-alignment or omni-alignment. The same idea is reflected in the Indian government’s concept of Vishwamitra, or “friend of the world.”

The apparent contradictions are visible in India’s international relationships. It sits alongside Russia and China in BRICS while simultaneously participating in the QUAD with the United States, Japan and Australia. It cooperates with Washington on Indo-Pacific security while maintaining substantial economic and political ties with Moscow.

This is less indecision than strategy. India seeks functioning relationships with competing powers while avoiding excessive dependence on any of them. For U.S. companies, that independence is both an opportunity and a risk. It makes India an important counterweight to excessive China concentration, but not a geopolitical substitute for a treaty ally. Supply-chain diversification into India should therefore be based on the economics and resilience of the individual supply chain rather than on the assumption that U.S. and Indian interests will always remain aligned.

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U.S.–India trade policy is changing the equation

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For an American company, one of the most important changes in 2026 is the emerging U.S.–India trade framework.

In February, the United States and India announced a framework for an interim agreement on reciprocal and mutually beneficial trade. Under that framework, India committed to eliminating or reducing tariffs on U.S. industrial goods and a range of agricultural products, while the two countries also agreed to address several non-tariff barriers affecting U.S. exports. At the same time, the United States agreed to lower its tariff rates from 25 percent to 18 percent and lift the additional 25 percent tariff imposed in response to India’s purchases of Russian oil.

The agreement is particularly relevant because the U.S.–India relationship has historically been characterized by substantial trade barriers. The framework addresses not only tariffs but also issues such as import licensing, testing requirements and the potential acceptance of U.S. or international standards in selected sectors. It also explicitly links trade to economic security, supply-chain resilience, investment reviews and export controls.

For U.S. companies, however, the same principle applies as for their European counterparts: the political headline should not be confused with the business case. Tariff reductions can materially improve the economics of exporting U.S.-manufactured products to India. They can also deepen industrial integration between the two countries. But they do not automatically solve the operational problems involved in sourcing from India.

Supplier qualification, quality assurance, certification, logistics and administrative complexity remain. In our webinar survey, 76 percent of respondents identified supplier quality assurance as a challenge and 42 percent pointed to administrative complexity. While that survey reflects predominantly European companies, the underlying issues are operational rather than uniquely European.

There is also a distinctly American variable: trade policy itself has become a more active component of supply-chain economics. U.S. tariff policy can change the relative attractiveness of sourcing locations quickly, while requirements related to economic security, forced labor, export controls and country of origin increasingly affect sourcing decisions. That makes it dangerous to build an India strategy around a single tariff differential. The more robust question is whether the supply chain still makes sense under a range of plausible trade-policy scenarios.

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The real decision is what role India should play

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For U.S. industrial companies, the India question is often framed too narrowly as an extension of “China + 1”: Which Chinese suppliers can be replaced with Indian ones? That is a useful starting point, but it understates the strategic decision.

India can play at least three fundamentally different roles in a global industrial footprint, and each requires a different business case. Companies that source from India are primarily evaluating supplier capability, landed cost, quality, logistics and the potential to reduce existing geographic concentration. For components with significant labor content, tooling, metal and plastic parts and selected industrial categories, this can already be compelling.

Companies that manufacture in India are making a much larger commitment. Once capital is tied up in plants and equipment, the calculation expands beyond labor costs to include infrastructure, local supply networks, regulation, energy, legal certainty, taxation and access to the Indian domestic market.

For a U.S. company, that last point can fundamentally change the investment case. A plant in India does not necessarily need to exist primarily to ship products back across the Pacific. With a domestic market of roughly 1.4 billion people, manufacturing in India can increasingly serve two purposes at once: diversifying global production while positioning the company inside one of the world’s largest growth markets.

The third role is engineering and development. Here, India already has characteristics that distinguish it from many alternative manufacturing locations. Its large pool of technically trained professionals and mature technology and engineering ecosystem mean the country can participate not only in producing a component but also in designing, industrializing and supporting it.

That creates a fundamentally different strategic possibility. Rather than moving individual purchase orders from China to India, companies can begin connecting sourcing, manufacturing and engineering capabilities within the same market. The relevant question is therefore no longer simply whether India is attractive, but what it is attractive for.

Sourcing a machined component from an Indian supplier for a U.S. factory follows a different logic from building an Indian manufacturing operation, and both differ in turn from establishing an engineering center there. Tariffs, labor costs, exchange rates, intellectual property, regulation and geopolitical risk affect each model differently.

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From “China + 1” to a genuine second industrial ecosystem

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This distinction matters because the weakest version of an India strategy is simply substitution. If the objective is to find an Indian supplier producing the same component at a lower quoted price than a Chinese supplier, companies risk recreating the same concentration problem in a different geography. The relevant measure is not the purchase price alone but total landed cost and, increasingly, the resilience of the surrounding industrial ecosystem.

That includes supplier depth, logistics, infrastructure, tooling capability, engineering support, quality systems and the availability of alternative suppliers if one fails.

Time matters as well. Industrial supply chains cannot usually be relocated in a quarter. Identifying suppliers, auditing facilities, qualifying parts, completing sample production and reaching stable series production can take twelve to eighteen months. A sourcing decision made today therefore needs to account for the conditions that could exist in 2027 or 2028 rather than simply extrapolating the economics of September 2026.

The strongest India strategies will consequently be those that move beyond “China + 1” toward something closer to a genuine second industrial ecosystem: a location capable of supplying components, supporting engineering, hosting production and eventually serving its own domestic demand. That is a much higher bar than finding another low-cost supplier. But it is also strategically much more valuable.

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The developments U.S. companies should watch now

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The first is the evolution of U.S.–India trade policy. The February framework points toward lower barriers and closer economic integration, but companies should pay attention to implementation details, product-level tariff treatment, standards recognition and any conditions attached to future market access.

The second is the broader direction of U.S. trade policy. Washington is using tariffs, market-access negotiations and economic-security measures more actively, meaning the relative attractiveness of India, China, Mexico, Southeast Asia and domestic U.S. production can shift much faster than traditional five-year sourcing models assume.

The third is India’s relationship with China and Russia. India may be strategically useful to Washington precisely because it is independent, but that same independence means New Delhi will continue making decisions based on its own interests. Companies should therefore distinguish between diversification away from China and political alignment with the United States. They are not the same thing.

The fourth is the underlying cost trajectory. Wage growth of nine to ten percent can erode a labor-cost advantage surprisingly quickly, particularly if currency movements stop compensating for it. Companies evaluating India over a five- or ten-year horizon should therefore focus less on today’s hourly labor cost and more on productivity growth, automation, supplier sophistication and the depth of the local ecosystem.

And finally, companies should watch how quickly India moves from manufacturing capacity to industrial capability. There is a meaningful difference between a country that can manufacture a part based on a drawing provided by a U.S. engineering team and one that can participate in design, supplier development, industrialization and continuous cost reduction. That transition will ultimately determine how much of the value chain India can capture.

For U.S. companies, the strategic question is therefore becoming more sophisticated. It is no longer simply whether India can provide a lower-cost alternative to China. It is what role India should play in a supply chain being redesigned around cost, resilience, market access and geopolitical risk simultaneously.

For some companies, the answer will remain sourcing. For others, it will be manufacturing or engineering, and for many it will eventually be a combination of all three. The objective is not to predict exchange rates, tariffs or geopolitics perfectly. It is to build an India business case that does not depend on any one of them. A company that finds India attractive only because today’s tariff or labor-cost differential happens to work is building on shifting ground. A company that combines cost, capability, market access and diversification can turn India from an alternative sourcing location into a genuine second pillar of its industrial footprint.

For a deeper look at the topic, watch the recording of our joint webinar with Halusa Advisors in the Tacto Academy.

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