Electronics manufacturers are sourcing more components from Vietnam, with imports rising to $5.36 billion in FY26. Companies are using zero-duty benefits under the India-ASEAN trade pact to lower costs amid rising chip prices. This shift is creating tension with domestic manufacturing goals, as firms prioritize cheaper imports over building local capacity.
Electronics companies operating in India are increasingly sourcing components from Vietnam to manage production costs. In FY26, imports of electronic goods from Vietnam climbed to $5.36 billion, rising from $4.89 billion in FY25. This 9.5 percent annual growth highlights a persistent trend where manufacturers are choosing imports over domestic alternatives despite government incentives aimed at building a local ecosystem.
The primary driver for this shift is the need to protect profit margins. Over the past year, global memory chip prices have risen nearly fivefold, significantly increasing the cost of production for items like smartphones and wireless earbuds. To offset these expenses, firms are leveraging the India-ASEAN Free Trade Agreement. This pact allows companies to import specific components at zero customs duty, provided the goods meet certain Rules of Origin criteria.
While government programs like the Mobile Phone Manufacturing Scheme and the Electronic Components Manufacturing Scheme offer incentives for local production, the math often favors imports. The zero-duty benefit provided by the trade pact makes foreign sourcing a more attractive financial option than local manufacturing, even after accounting for the 4 percent incentives offered for domestic display and component assembly. As a result, companies are prioritizing immediate cost efficiency over long-term investment in local supply chains.
There is also a broader regulatory concern regarding the origin of these imports. Some market observers have raised questions about whether Vietnam is being used as a conduit for goods that may be manufactured in China. By routing these items through Vietnam to utilize the trade pact, companies can avoid Most Favored Nation (MFN) tariffs, which can reach up to 20 percent on certain components. This practice effectively bypasses the tariff walls designed to support local manufacturing and protect domestic revenue.
This trend poses a challenge for the long-term success of domestic electronics initiatives. If manufacturers continue to rely on imports to maintain margins, the goal of creating a self-sustaining local electronics ecosystem may face delays. For investors, the key monitorable will be potential government policy changes. If the regulator decides to tighten the Rules of Origin or re-examine the India-ASEAN trade pact to curb these imports, it could lead to higher raw material costs for electronics makers. Investors should also watch for any management commentary on how companies plan to balance these import-led cost savings with the pressure to build domestic capacity.