India is gaining from China+1. The real question is whether MSMEs can keep up
India’s manufacturing moment may finally be arriving; not merely as a distant promise, but as a policy commitment backed by capital.
The Union Budget 2026–27 marked a decisive shift with notable changes. Finance Minister Nirmala Sitharaman announced the launch of India Semiconductor Mission 2.0, nearly doubled the outlay for the Electronics Components Manufacturing Scheme to ₹40,000 crore, and set out a broader framework to move Indian manufacturing from assembly-led growth toward integrated supply chain ownership. The signal to global investors was clear: India is not just open for business, it is building the ecosystem to sustain it and be a long-term global player.
And this policy momentum is put into effect at exactly the right time.
The China+1 shift is real, and India is in the picture
The China+1 strategy where global enterprises and large multinationals diversify manufacturing and sourcing beyond China to reduce geopolitical risk and cost exposure, has gone from being a boardroom conversation to a grassroot-level reality. In 2025, companies like Apple, HP, Foxconn, and Dell accelerated relocations to India, Vietnam, and Mexico. In fact, Apple’s iPhone exports from India rose 76% year-on-year in April 2025 alone.
India’s structural advantages are real: a large young workforce, competitive production costs, growing infrastructure that is continually improving, and a government that has shown policy continuity across manufacturing incentives. India’s manufacturing PMI has remained above 50 consistently, signalling expansion when comparators like China and Indonesia have struggled.
But capturing this opportunity at scale is not just about policy or demand. It depends on whether the enterprises at the base of India’s supply chain – its MSMEs – can take on the volume, speed, demand, and financial pressure that being catapulted onto the global stage brings.
MSMEs are the load-bearing pillar of India’s export economy
MSMEs account for 30.1% of India’s GDP, 35.4% of manufacturing output, and 45.73% of the country’s total exports – as confirmed by the Union MSME Minister in July 2025. MSME exports have grown from ₹3.95 lakh crore in 2020–21 to ₹12.39 lakh crore in 2024–25, and the number of exporting MSMEs more than tripled in the same period.
These are not peripheral contributors, they are the structural component of India’s export engine. And yet they are absorbing increasing strain.
As global companies deepen their sourcing in India, Indian manufacturers face demands that are qualitatively different from those they managed before: larger order volumes, tighter delivery timelines, far more rigorous compliance requirements, and longer payment cycles from buyers operating on extended terms. The opportunity is real. So is the working capital gap it creates.
The structural problem: demand is rising, liquidity has not kept pace
When an MSME secures a larger order from a global buyer, it must finance higher inventory, upfront raw material costs, and production expenses, often months before payment arrives. This is the paradox at the heart of India’s manufacturing growth story. Growth creates a cash-flow deficit before it generates returns.
And the delayed payments problem compounds this significantly. According to the GAME-FISME Delayed Payments Report 3.0, outstanding delayed payments to India’s MSMEs stood at ₹7.34 lakh crore as of March 2024 – down from a peak of ₹10.7 lakh crore in 2022, but still representing over 4.6% of India’s Gross Value Added. As recently as March 2026, the government informed the Rajya Sabha that over 2.56 lakh cases involving ₹55,244 crore had been filed on the MSME Samadhaan portal, with ₹22,096 crore still outstanding.
These are not one-off cases. They represent a systemic liquidity drain on the very enterprises that are supposed to power India’s next phase of manufacturing growth.
Why traditional lending doesn’t solve this
The instinct may be to say: get MSMEs more credit. But traditional working capital loans are slow to disburse, dependent on collateral, and based on balance sheet strength, not on the transaction certainty that a confirmed purchase order or approved invoice represents. For an MSME with a large buyer and an approved invoice, its creditworthiness is essentially the buyer’s, not its own. Yet traditional lenders still price the risk as if it were the MSME’s.
This is precisely the gap that invoice discounting is designed to close.
TReDS: financing against the transaction, not the balance sheet
The Trade Receivables Discounting System (TReDS) is an RBI-regulated platform that allows MSMEs to convert approved invoices into working capital within 24 to 48 hours of bid acceptance, without pledging collateral and with no recourse risk if the buyer defaults. As of FY24, TReDS platforms collectively financed over ₹1.38 lakh crore across 41.6 lakh invoices, an 80% surge in value over the previous year.
The regulatory architecture is also being strengthened. The government has lowered the mandatory TReDS registration threshold to companies with turnover above ₹250 crore. The Union Budget 2026–27 went further: it announced that TReDS would become the default settlement platform for CPSE procurement from MSMEs, with credit guarantee support, GeM integration, and the enabling of receivables securitisation.
These are not marginal adjustments. They represent a structural shift in how India intends to finance the working capital cycle of its supply chains.
The real constraint on India’s manufacturing ambition
India’s manufacturing story is frequently told through the lens of policy – PLI schemes, semiconductor missions, FTA negotiations. These matter. But the narrative tends to skip past the financial plumbing that makes it all work.
An MSME in a Tier-2 or Tier-3 Indian city that wins a global contract cannot wait 90 days for payment while financing the next production cycle out of pocket. If liquidity doesn’t flow as fast as demand, the bottleneck isn’t capability – it’s cash.
The China+1 opportunity is real. The policy framework is increasingly credible. But the next phase of India’s manufacturing growth will not be constrained by the absence of orders. It will be shaped by whether liquidity flows through the supply chain efficiently enough to sustain the enterprises that fill it.
That is the infrastructure question that rarely makes headlines. It is also the one that determines whether India captures this moment or watches it pass.