Executive summary
Companies from Korea, Taiwan and Japan entering Indian manufacturing face an early choice: produce through an Indian or foreign-owned contract manufacturer, or build their own plant. India's foreign investment rules allow both. The decision usually turns on volume certainty, process sensitivity, capital and speed. This guide sets out what the rules say, how the two models compare, and what to check before committing.
What the rules say
India's Press Note 4 (2019) amended the FDI policy so that manufacturing activities may be conducted either by the investee entity or through contract manufacturing in India under a legally tenable contract. The Department for Promotion of Industry and Internal Trade (DPIIT) has since clarified that contract manufacturing in India is covered by the definition of manufacturing, and that a manufacturer may sell products manufactured in India through wholesale and retail, including e-commerce, under the extant policy.
In practice this means a foreign brand owner can set up an Indian entity, outsource production to a local contract manufacturer and still be treated as a manufacturer for FDI purposes, subject to the policy's conditions.
How the two models compare
Contract manufacturing usually suits companies that:
An own plant usually suits companies that:
Many companies move from the first model to the second, or run both: contract production for some lines and an own plant for core ones.
Check incentives carefully
India's central production-linked incentive schemes, the India Semiconductor Mission and state industrial policies all have their own eligibility tests, timelines and approval processes. Support is approved case by case and is not an entitlement. Whether a contract-manufacturing structure qualifies for a specific scheme depends on that scheme's rules.
Check the manufacturer
Before shortlisting a contract manufacturer, confirm its legal identity through the Ministry of Corporate Affairs master data and its GST registration and filing status on the GST portal. Then assess capacity, certifications, customer references, quality audits and financial health. Our partner and distributor checklist sets out the steps.
Questions to resolve before committing
Read country context in our Taiwan–India and Korea–India guides.
What this guide does not tell you
It does not compare costs, lead times or yields; these depend on product, state and partner and should be benchmarked. FDI and incentive rules change, so check the current text before structuring.
How Nirji Ventures engages
The Nirji Community is a private network for companies and startups exploring Asia Pacific expansion; expressing interest is free and does not promise funding, introductions or programme admission. NirjiX, the group's consulting firm, takes on paid market-entry, partner-diligence and project-execution engagements. The two paths are separate: Community participation is not a consulting engagement, and consulting enquiries do not require Community membership.