Will Trade War Make South India the Next Manufacturing Hub?

Delta, Taiwanese maker of electronic components has  five-year drive to establish a manufacturing hub in southern India. Besides the spanking-new research-and-development center where about 400 Taiwanese and Indian engineers work, the company operates a 125-acre manufacturing facility in Krishnagiri, in the adjacent state of Tamil Nadu. That site churns out electric vehicle chargers as well as equipment that will be used to make iPhones by contract manufacturers for Apple Inc., which has announced plans to source most of its US-destined smartphones from India.

Six months into Trump’s second term, the outlook for global trade has never looked more uncertain. As manufacturers debate whether to leave China—which has been saddled with some of the steepest US tariffs—India is seeking to cash in on the potential rewiring of supply chains. Working in its favor are its army of young workers and wages that are a fraction of those in other Asian manufacturing powerhouses.

So far, much of the new investment is flowing into the country’s more prosperous, more industrialized southern states. Local officials are doing everything within their power to welcome the new arrivals, including fast-tracking infrastructure projects and providing tax incentives, which may help India shake off its reputation as a difficult place to do business.

For India as a whole, developing a robust manufacturing sector has been a longtime goal—and one that’s eluded many leaders.  The drive was pushed heavily by the Prime Minister Narendra Modi’s “Make in India” campaign, which was launched in 2014 with a target that a quarter of India’s economic output would come from manufacturing by 2025. But in the fiscal year ended March 2024, the sector still accounted for only 17.3% of gross domestic product, effectively unchanged from a decade earlier.

The national trend obscures progress in a handful of states in the south of the country. Among them is Tamil Nadu, which is close to achieving Modi’s prescribed 25% target. Although it’s home to only 6% of the population, the state boasts more factories than any other in the country—the fruit of decades of prioritizing education, infrastructure development and business-friendly policies.

For all the strides southern India has made toward becoming a global manufacturing hub, factory owners say there’s still one key shortcoming: Even if their factories are based in India, they continue to rely on components and materials imported from China.  That consideration also weighs on Lin, the Delta Electronics executive. He says the company’s Indian production lines are now more cost-effective than its factory in Thailand. But they can’t compete on price with its China facilities, which draw on a just-in-time electronics supply chain whose depth and speed have been honed over decades.

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