How do India's manufacturing prospects compare with those of competing manufacturing economies?

India’s biggest advantage in attracting global manufacturing is competitive wages.  India’s average monthly wage in manufacturing is $240, compared with $750 in China. However, when 56 firms shifted production out of China between 2018 and 2019, only three chose India. Twenty-six chose Vietnam, which has a population one-fourteenth the size of India’s, a far smaller domestic market, and no obvious advantage in infrastructure or geography. What Vietnam has is a regulatory environment in which a firm can hire workers, set shift schedules, and expand production without triggering a cascade of compliance obligations at every step. 

The true cost of employing a worker is the wage plus the cost of every regulation that worker’s presence activates. India’s working hour rules, overtime caps, and mandatory premium all add to this cost, and on each dimension, India sits well outside the range of competing economies. Countries that have successfully absorbed labour-intensive manufacturing, like Vietnam, Malaysia, and Bangladesh, allow longer working days, more overtime hours per quarter, and lower mandatory premiums than India does. The cumulative effect of sitting at the restrictive end on hours, overtime caps, and premiums simultaneously is a regulatory cost of employment that no wage advantage can fully offset.

The Factories Act mandates a minimum of 3.38 square metres of floor space per worker, the highest standard found among comparable economies, and requires factories to reserve additional space for canteens, creches, ambulance rooms, and lunch rooms, with each requirement kicking in at a different workforce threshold. A 250-worker factory that hires one additional worker must immediately construct a canteen, a dining hall, and additional sanitation facilities. In a factory in Ambad, Maharashtra, the single hire costs Rs 4.46 lakh in compliance. The rational response is to split rather than grow. Two 150-worker factories require 37% less floor space than one 300-worker factory. The OSH Code, 2020, which came into effect on  25th November 2025, does not solve this problem.