India wants to become the top manufacturing alternative to China. But first it needs to beat Vietnam

India wants to be the top manufacturer in Asia as companies shift away from China, but first it needs to lower taxes and improve supply chain efficiency if it wants to dethrone Vietnam.

The U.S. has pursued a "friendshoring" agenda as competition with China increases. The Biden administration has encouraged American companies to move electronics and technology manufacturing operations out of China and into friendlier countries, particularly Vietnam and India in Asia-Pacific.

"Both Democrats and Republicans see China as a challenge. And every boardroom in the U.S. is asking a CEO what their derisking strategy from China is," said Mukesh Aghi, president and CEO of the U.S.-India Strategic Partnership Forum. 

India and Vietnam are attractive manufacturing alternatives for foreign investors and companies, due in part to low labor costs. Between the two, however, Vietnam is still way ahead with 2023 exports totaling $96.99 billion, compared with India's $75.65 billion.

"Vietnam has been known for their ability to manufacture electronics. India is just getting into that game, so that provides Vietnam with a competitive advantage," said Samir Kapadia, CEO of India Index and managing principal at Vogel Group.

While India's relationship with the U.S. has warmed, especially after Prime Minister Narendra Modi's state visit to the White House in June, Vietnam has had a trade and investment deal with Washington since 2007.

Another key advantage for Vietnam is a more simple proposition compared with India, which Aghi noted has "29 states and every state has a policy which may be different."

"Vietnam has an upper hand when it comes to economies of scale manufacturing where its mostly manual labor," Nari Viswanathan, senior director of supply