A Bright Future for India Tech Manufacturing

Oct 27, 2023

India’s role in technology manufacturing is poised for rapid growth as companies reassess supply-chain resilience in light of a rewiring of the global economy.

Key Takeaways

  • India’s electronics manufacturing is poised for rapid expansion as tech companies diversify supply chains and reduce dependence on China.
  • Electronics manufacturing in India could see compound annual growth of 21% a year through 2032, to $604 billion.
  • Demographics and government policy make India an appealing destination for companies looking to realign operations.

Technology supply chains are ripe for disruption—and India is positioned to benefit.


As a multipolar world order continues to emerge, global commerce is becoming less decentralized and less deeply interconnected. With the U.S. and China focused on their own economic and national security concerns, potentially at the expense of seamless supply chains, business leaders are reassessing supply-chain resilience. This has turbocharged trends toward re-shoring, nearshoring and friend-shoring as companies look to neighbors and allies to source and manufacture critical components.


“India shines as a promising alternative in tech supply chains, innovation hubs and joint ventures,” says Ridham Desai, Morgan Stanley’s Chief Equity Strategist for India. “As a country, it most closely resembles China in terms of scale, legal framework, knowledge base and manufacturing tradition.”



A Strong Link in the Supply Chain

Many top brands already have a foothold in India, and several major technology firms—including a leading smartphone maker—recently signaled plans to establish or expand operations there. India’s electronics manufacturing sector could expand by 21% per year to $604 billion by 2032, according to Morgan Stanley Research forecasts. Based on these and other factors, including India’s rising power in the world economic order, Morgan Stanley’s Multinational Corporation Sentiment Index for India, which tracks managers’ attitudes toward business conditions, is near an all-time high.


To get a sense of India’s growth potential in tech manufacturing, consider mobile phones. In 2014, India had just two factories making the devices, and didn’t export any. Today, India is the world’s second-largest manufacturer after China. From April 2022 to the end of March 2023, the country’s mobile exports reached a record $11.2 billion, meaning electronics have overtaken ready-made garments as India’s dominant exports. Its largest mobile export markets—the U.S., the U.A.E., the Netherlands, the U.K. and Italy — could be worth $50 billion by 2026, according to the India Cellular & Electronics Association.


Now, India is going after other pieces of the electronics supply chain. Already, electronics manufacturing employs about 25 million people and accounts for 3% of gross domestic product. The country’s share of global electronics manufacturing has grown to roughly 3%, up from 1% a decade ago.


Labor and Policy Outlook

Demographics further enhance India’s appeal as a tech manufacturer. On the demand side, the country’s population is booming, and strong disposable income will help drive an increase in discretionary spending in the next decade. Urbanization is expanding, as is consumer access to electricity, financing and e-commerce. On the supply side, a large and growing working-age population ensures an ample labor supply. Moreover, the United Nations predicts that India’s working-age population will remain higher than the world average through 2038, giving it a demographic edge over other emerging markets.


“All of this means electronics manufacturers could see India as the next natural major stop,” says Desai.


Government support is also strong. Policymakers have prioritized electronics manufacturing as a pillar of the country’s “Make in India” and “Digital India” programs. In its aim to become a net exporter of electronics, India has already taken steps to entice investment by boosting infrastructure spending, simplifying procedures, implementing new trade agreements, lowering corporate taxes and introducing production-linked incentives.



Looking Ahead

Desai and his colleagues think India is on its way to be “factory to the world”—but there are hurdles. India has yet to build the kind of electronics ecosystems supported by fiscal incentives, better infrastructure and tax breaks for multinationals that have allowed Asian counterparts to gain favor with tech firms. The country’s employment laws remain complex and production costs are higher than regional alternatives due to obstacles including legal complexity, dearth of skilled labor and infrastructure problems—such as unreliable electricity, freight rail snags, and poor road quality—that can lead to costly delays. As India addresses these issues, it will have to work to transform corporations’ perceptions of the country from a destination for low-cost outsourcing to a collaborator in making advanced technologies.


While transformation will take time, recent investments by major tech firms could be the signal that other companies have been waiting for. Morgan Stanley estimates that India’s overall electronics production will be worth $190 billion by 2026.


“The combination of favorable demographics and increasing disposable income should lead to stronger consumption of electronics over the next decade, while a burgeoning manufacturing footprint and ready supply of labor have the potential to substantially increase exports, especially of mobile phones, from India in the next three to five years,” Desai says.



For full insights on the factors driving growth in India’s technology manufacturing, ask your Morgan Stanley Representative or Financial Advisor for the full report “Multipolar World: Tech Supply Chains Make India the Next Stop,” (July 3, 2023).

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