How Indian MSMEs Are Powering a Manufacturing Revival with the China+1 Strategy

In the quiet hum of industrial clusters across India, from Coimbatore to Noida, something remarkable is unfolding. Small and medium manufacturers, long overshadowed by multinational giants, are stepping onto the global stage. And behind this quiet resurgence lies a powerful geopolitical shift known as the China+1 strategy.

As global companies rethink their dependence on a single manufacturing hub, especially China, India’s micro, small, and medium enterprises (MSMEs) are becoming pivotal players in this worldwide realignment. For decades, China was the world’s factory. But trade wars, pandemic-era disruptions, and the growing need for diversified supply chains have shifted the mood. The phrase “China+1” is no longer a theory—it’s now a core strategy for global sourcing.

And India’s MSMEs, agile, resourceful, and increasingly global-ready, are emerging as serious contenders.

A Strategic Opportunity Finds Ground in India

In recent years, India has quietly repositioned itself as a manufacturing hub. While the "Make in India" initiative laid early groundwork, real traction is now coming through Production-Linked Incentive (PLI) schemes, sector-specific export policies, and digital infrastructure that is enabling small businesses to go global.

The PLI scheme alone has generated over ₹1.61 lakh crore in private investment and created more than 11.5 lakh jobs, according to recent data from the Ministry of Commerce. More than 760 companies have benefited from the scheme, over 170 of them are MSMEs. For a sector that once struggled to be seen, this is no small feat.

The push is showing results. India has now emerged as the second-largest smartphone producer globally, largely due to mobile production moving away from China. Industry giants like Apple and Samsung are expanding local assembly, bringing with them a wave of smaller ancillary units, many of which are Indian MSMEs, into global supply chains.

From Margins to Mainstream: The MSME Leap

What makes this moment especially significant for MSMEs is the nature of the demand. It’s not about bulk, low-cost manufacturing anymore. Global buyers today are looking for resilience, flexibility, ethical sourcing, and innovation. Indian MSMEs, particularly those that have embraced digitisation, upgraded technology, or acquired international certifications, are increasingly ticking these boxes.

A recent study by NASSCOM highlighted that global buyers are choosing Indian MSMEs not just for cost reasons, but also for faster turnaround, quality compliance, and easier communication. In short, Indian suppliers are no longer just an “alternative”—they’re becoming a preferred partner.

From engineering goods to textiles, pharmaceutical intermediates to auto components, sectors with deep MSME roots are seeing new export enquiries and order books swelling. And this isn't just speculation. India’s MSME exports reached $167 billion in FY25, marking a healthy 12.3% year-on-year growth.

State-Level Momentum Adds Firepower

Some Indian states are now recognising the China+1 opportunity and rolling out targeted initiatives to support MSMEs. In Andhra Pradesh, a recent international buyer-seller summit resulted in over 100 MoUs signed between local MSMEs and foreign buyers from the US, UK, GCC countries, and Africa.

Uttar Pradesh, home to over 96 lakh MSME units, has launched campaigns to promote first-time exporters, upskill local entrepreneurs, and showcase state-made products to international buyers.

These efforts are helping regional businesses find global visibility and build long-term export relationships—something unimaginable a decade ago.

The Roadblocks Ahead

Yet, the path to global manufacturing relevance isn’t paved entirely in opportunity. Beneath the optimism lie real challenges.

While the PLI schemes have created momentum, many small businesses still struggle with entry barriers, a lack of awareness, and limited access to credit. Several MSMEs continue to rely on imports from China for raw materials and components, especially in electronics and APIs. The ecosystem around them—testing labs, logistics, skilled manpower—still needs substantial strengthening.

Moreover, India’s manufacturing share of GDP has slightly declined in recent years, from 15.4% to 14.3%, despite a policy push. Experts say the full benefits of these programs will only show with deeper reforms, sustained skilling, and improved ease of doing business.

Rewriting the Global Manufacturing Story

Despite these hurdles, the shift is undeniable. The China+1 strategy has nudged the world’s attention toward India, and its MSMEs are responding with surprising strength.

They are no longer passive spectators of economic policy. They are transforming, investing in capability, learning global trade practices, and beginning to own their space in the international marketplace. There is a quiet revolution happening—one contract, one container, one factory at a time.

This manufacturing revival is not just about numbers. It’s about the rebirth of India’s industrial spirit, powered by its most unassuming players.

The Verdict

As the world looks for alternatives to China, India’s MSMEs are no longer on the sidelines. They are now central to the conversation, ready to supply, to scale, and to surprise.

For India, this is not just an economic shift; it’s a moment to build something enduring. If supported well, MSMEs can power the country into the next industrial era, rooted in resilience, driven by innovation, and proudly Made in India.