Whalesbook
India's Export Boom to China
India's electronics component and sub-assembly exports to China have reached a record $2.5 billion in FY26, with the fiscal year not yet over. This surge is largely driven by Apple Inc.'s supply chain partners operating in India, supported by the government's Electronics Component Manufacturing Scheme (ECMS). Officials view this as early evidence of ECMS's effectiveness and a key step in rebalancing trade flows, where China historically supplied components to India. By January of FY26, India had already secured $2.8 billion in electronics exports to China. The total for the fiscal year is projected to reach $3.5 billion, a significant jump from approximately $920 million in FY25. This growth is primarily fueled by Apple's expanding local manufacturing ecosystem, with vendors like Foxconn, Tata Electronics, Pegatron, Motherson, Salcomp, TRIL Bangalore, and Yuzhan Technology leading the charge.
Government Schemes Fueling Exports
Experts attribute this export windfall to the combined effect of the Production Linked Incentive (PLI) scheme for smartphones and ECMS. These policies have incentivized Apple and its partners to build local manufacturing operations that are competitive in quality and scale. The PLI scheme, launched in 2020, has already seen electronics production grow from ₹2.13 lakh crore in FY21 to ₹5.25 lakh crore in FY25. ECMS, implemented in April 2025, specifically targets component manufacturing, offering turnover and capital expenditure-linked incentives to build a self-sustaining ecosystem. The government has increased the ECMS outlay to ₹40,000 crore, with 22 new projects approved by January 2026 involving ₹41,800 crore in investment. Furthermore, 28 projects under ECMS have already commenced construction, indicating rapid implementation. These initiatives aim to drive domestic value addition and position India as a global manufacturing hub.
Shifting Global Supply Chains
India's accelerated export growth to China reflects a broader trend of diversifying supply chains, often referred to as a 'China+1' strategy. While Vietnam has also seen its electronics exports to China increase, particularly for phones and components, many of its products are re-exported to China. South Korea, historically a dominant player, continues to export robust semiconductor shipments to China, though competition is intensifying as China advances in legacy and general-purpose chips. Taiwan remains a significant exporter of integrated circuits and electronics to China, but its own export destinations are diversifying. India's advantage is amplified as China's labor costs rise, making labor-intensive component manufacturing increasingly cost-competitive in India. Despite its export success, India's overall trade deficit with China remains substantial, projected to reach $106 billion in 2025, largely due to high imports of electronics and machinery. Apple's current P/E ratio of approximately 32.75 is above its historical median, suggesting investor confidence in its future growth, partly underpinned by its diversified manufacturing base.
Risks and Challenges Ahead
While the export numbers paint a positive picture of Indian manufacturing, significant risks persist. The export success is heavily concentrated around Apple, creating vulnerability to shifts in the tech giant's strategy or production volumes. The widening trade deficit with China, driven by India's substantial import of electronics and other goods, remains a persistent concern. Geopolitical tensions and potential trade disputes could impact export stability. Furthermore, China's own ambitious industrial policies and rapid advances in its domestic manufacturing capabilities, including in semiconductors, pose a long-term competitive threat that could erode India's gains in specific product segments. The sustainability of India's export surge also depends on the continued effectiveness of government incentive schemes like PLI and ECMS, and the government's ability to manage inflationary pressures and supply chain fragilities. Concerns exist regarding long-term competitive positioning against established manufacturing hubs and China's own evolving industrial ecosystem.
Outlook for India's Electronics Sector
The success of the PLI and ECMS schemes indicates India's potential to capture a large share of global mobile phone production, potentially reaching 30-35%. Industry stakeholders are advocating for PLI 2.0 to sustain this momentum, alongside continued support for component manufacturing through ECMS, which has already seen a significant increase in approved projects and investments. With China's own electronics imports exceeding $600 billion annually, it presents a vast market for Indian components, potentially transforming it from a primary import source to a key export destination. India's electronics manufacturing sector, aiming for $300 billion by 2026, is set for continued growth, with a focus on increasing domestic value addition and moving up the global manufacturing value chain. This strategic shift could see India becoming a stronger player in global electronics supply chains, provided it can navigate competitive pressures and geopolitical complexities.