Why India Risks Becoming 1990s China Without the Escape Plan
India is attracting the world with affordability, but not building upward mobility, ownership, or IP. If we don’t shift from cost to value, we’ll be busy for a decade; but not richer.
India 2025: A Booming Economy, A Dangerous Pattern
India’s macro story today is the world’s favourite headline.
Manufacturing exports are rising
Global giants like Apple, Foxconn, and Tesla are already manufacturing or setting up shops soon
The country is the centerpiece of every “China+1” conversation
Domestic demand is resilient, and the tech stack is admired worldwide
By all accounts, this should be India’s decade. But underneath this momentum lies a familiar and dangerous pattern.
The world is investing in India because it’s affordable, not because it’s indispensable.
Factories are humming. Jobs are being created. But at the core of this growth is a singular proposition:
India has the world’s largest pool of cheap, semi-skilled labor.
That’s not strategy. That’s arbitrage.
And if left unchecked, India risks locking itself into a low-cost, low-value identity.
Very similar to 1990s China, but without the structural levers China used to escape it. We’re seeing:
No significant jump in skilled engineering talent
No transfer of product IP or R&D to Indian control
No wage progressions tied to learning curves
No ecosystem design beyond physical plants and labor pools
We’re exporting output, but not growing ownership on any key current or future levers. We’re absorbing capital, but not creating compounders in the market or the broader economy.
The cheap labor story works for now. But if India continues to scale on cost instead of value, the next decade will leave us busier than ever, but not richer.
What China Did in the 1990s — And Why It Worked
To understand where we in India could be heading, it’s useful to look back at where China started. The China of the early 1990s looked surprisingly familiar:
A vast, young, underemployed labor force
Rising urban migration
Government courting foreign capital
Wages low, labor flexible, land abundant
Global firms looking to shift manufacturing out of expensive markets
China leaned in — aggressively. But what’s often forgotten is this:
Cheap labor wasn’t China’s economic identity. It was just their entry ticket.
Here’s what China did differently — and why it worked:
China used low cost as a temporary hook, not a permanent model.
Cheap labor got multinational corporations in the door. But the state quickly built pathways to move workers up the value chain : from basic assembly to skilled manufacturing to domestic product design. Industrial zones weren’t just cost centers, they were training grounds.
China invested in hard and soft infrastructure simultaneously.
Logistics corridors, ports, railways, power grids; all scaled alongside manufacturing. But equally important, the following materialised in parallel:
Dormitory cities for workers
State-supported vocational schools
Industrial apprenticeships tied to factories
Healthcare and food subsidies for migrant workers
Urbanization was managed. Migration was supported and at times, incentivised. Productivity in real tangible terms was planned and supported with an extreme sense of urgency.
China built domestic champions alongside foreign contracts.
Foxconn assembled iPhones — but Huawei, Lenovo, Haier, BYD were growing in the background. China used FDI to finance factories — but always kept an eye on creating IP-owning, brand-owning domestic firms.
China didn’t just want jobs. They wanted control of what gets made, how, and for whom.
China didn’t treat cheap labor as a brand.
China never sold itself as “the cheapest place to do business.” It sold itself as “the most efficient, the fastest-scaling, the best-integrated supply chain on Earth.”
There was pride in the machine and output; not in the discount. Unfortunately, we still sell human capital as arbitrage, and seek pride in it.
China created a long runway for value transformation.
By the mid-2000s, China was already shifting to:
High-speed rail
Chip design
Global e-commerce platforms
Renewable tech
Domestic consumption and tech-led growth
All the above enabled China to move from “Made in China” to “Designed, owned, and scaled in China” within 15 years.
India, today in 2025, is where China was in 1995; but without central planning, industrial coordination, or a clear roadmap for value creation. If we don’t internalise and learn from how China escaped the cheap labor trap, we risk copying its entry point without ever reaching its exit velocity.
What India Is Doing Today — And What’s Missing
India today is riding a surge of economic optimism.
Apple has tripled iPhone production in India in just two years.
Foxconn, Pegatron, and other global suppliers are hiring aggressively.
Electronics exports are at record highs.
The world’s largest contract manufacturers are setting up shop.
PLI schemes, infra push, and a favorable geopolitical climate have positioned India as the next big thing.
But what we’re building is not yet a value economy.
What we’re building is a cost-efficiency machine.
For example, most states and central scheme are putting their 100% behind certain efforts to drive impact, yet most fall short. Among the myriad of reasons, a few key aspects that leads to us falling short is:
We in India absorbing low-skill capital, not building deep talent.
Apple may be manufacturing more iPhones here, but almost all the design, IP, and engineering value still sits outside India. We’re assembling phones — not innovating them.
Jobs are being created, yes. But they are:
Line-level assembly roles
Low-skill, repetitive work
Easily replaceable labor
With minimal training ladders or wage growth
The model is simple: Do what China used to do — but cheaper.
There’s no ecosystem building, just factory plug-ins.
In the cities where these manufacturing hubs are growing — like Sriperumbudur, Noida, or Hosur — we see:
New plants
Contract hiring
Warehousing expansions
But very little in terms of:
Supplier development
SME capability building
Local engineering colleges feeding in
IP or design control moving locally
New training institutes, new faculty training means, or industry collaborations for R&D
Bodies like NASSCOM and CII continue to be about formal meet-ups to self-glorify, rather than commit to initiatives that drive outcomes with regular success audits. They’re handicapped at their foundational levels, managing more PR mandates, and have low intent to drive social outcomes.
We’re inserting India at the cheapest point in the supply chain, without anchoring the supporting value ecosystem around it.
Beyond manufacturing, the same trap plays out elsewhere.
It’s not just Foxconn and Apple. This logic is creeping across sectors:
Gig platforms that offer work, but no benefits or career ladder
Contract-based IT delivery with low margins and zero IP retention
Customer support centers that are just updated versions of the BPO wave
Government apprenticeship schemes subsidizing wages without real skill transfer
We’re repeating the same mistake at scale:
More people working. No one advancing.
We confuse busyness for progress.
India looks busy. Very busy.
More jobs are being reported
More exports are leaving our ports
More factories are hiring
But the quality of that work?
Static wages
High attrition
No IP creation
No productivity compounding
No upward mobility
That’s not transformation. That’s treadmill growth.
India is in motion, but not necessarily in ascent. Unless we build systems that allow people to move from labor to leadership, from hands (technical) → head (cognitive)→ ownership (equity), we will remain a cheap, flexible, scalable; but replaceable workforce.
The Risk: Getting Locked into a “Cheap But Replaceable” Identity
Every country starts somewhere. There’s nothing inherently wrong with us in India using our labor advantage to enter global supply chains. China did it. Vietnam is doing it. Bangladesh and Mexico are doing it. The danger isn’t in starting cheap.
The danger is staying cheap — and getting stuck there.
India risks building a global identity that says:
“We’ll do it for less.”
“We don’t need IP, just volume.”
“Don’t worry about upskilling — we’ll manage.”
“Need replacements? There’s more where that came from.”
That’s not a reputation. That’s a liability. For a few key reasons:
No value moat, easy to exit, easier to replace
When you’re selected only for cost, you're the first to be replaced when someone else gets cheaper, or when automation makes your labor irrelevant. Global capital is brutally pragmatic.
If your only edge is being affordable, you’ll never be indispensable.
No social mobility, just churn
A job that starts at ₹12,000/month and still pays ₹21,000 after five years isn’t a livelihood, it’s subsistence.
Without progression:
Workers never build wealth
Communities never stabilize
The next generation starts from scratch again
This isn't a workforce-oriented model. It’s an endurance test for the participants.
No ownership of output = no control over destiny
When a country never controls the design, branding, patents, or platforms, it becomes a supplier, not a creator. If we continue exporting only output, not ideas, we’ll always be working for someone else’s roadmap.
India will be visible in supply chains, but invisible in strategic value. And visibility for cost-purposes in business comes with a shelf-life.
No national brand of excellence
What do you associate with India globally today?
Cost-effective back offices
Software services
Yoga and spirituality
Bollywood
But where is the Indian product brand? The Indian design language? The Indian breakthrough in hardware, deep tech, or global platforms? If we don't build a brand for value and excellence, we will forever be associated with being “the cheaper version.”
It's not just economic. It’s cultural.
A country’s self-worth is shaped by what it builds and how the world sees its output. A decade spent being the world’s cost-center without ownership or upward mobility will shape how our youth see themselves: as replaceable labor, not builders of original systems. The high-intent, original thinkers will drift off to more greener pastures in search of better ROI on their efforts and for their quality of life.
That’s not the India we’ve promised ourselves. The longer we scale based on cost, the harder it becomes to scale based on value.
The cheap labor trap isn’t just a growth problem. It’s an identity crisis for India waiting to happen.
What India Must Do Differently — Now
We in India still have time. We’re at a critical juncture — the global shift away from China is real, the world wants to invest, and the domestic consumption engine is strong.
But we must design our growth path consciously, else we’ll default into becoming the world’s cheapest supplier; and nothing more.
Here’s how we can change the trajectory:
Make skilling a strategic function, not a CSR initiative
Skill India and NSDC-type programs have scale, but little depth. They are supply-driven, not tied to real employer demand or progression planning.
We need:
Sector-linked skill ladders (like Germany’s dual apprenticeship models)
Paid learning with wage progression
Tiered certification that ties to promotions
Public-private platforms that reward skill mobility
Skilling must move from checkboxes to career compounding.
Incentivize domestic IP and platform creation
It’s not enough to “make in India.” We must also design in India, own in India, and scale globally from India. Policy moves like PLI must be paired with:
R&D credits and tax incentives
Public funding for design and prototyping
Preferential procurement for Indian IP
IP protection frameworks that encourage founders and engineers to stay
If we don’t create local innovation, we’ll always be someone else’s assembly line.
Build sector-specific value chains, not general infrastructure
India’s industrial push often focuses on generic infrastructure: roads, ports, power. Important, but insufficient.
We need:
Integrated textile cities (design to export)
Pharma clusters with clinical trial and IP integration
Electronics parks that go beyond contract assembly
Food processing corridors that connect farmers to global packaged goods value chains
Every sector needs its own “idea to invoice” ecosystem.
Make cities hubs of mobility, not just migration
Today, cities absorb labor but don’t enable upward movement. We need:
Urban housing designed for workers, not just luxury
Public transport that connects industrial zones to residential belts
Vocational campuses embedded in city plans
Health and safety nets for the contract economy
A city should not just host labor — it should level them up. Unfortunately, we’re currently levelling down our urban dwellers, with the even-lasting, irrational real-estate cost bubbles.
Shift national branding from cost to quality
We must stop celebrating “cheap labor” as an asset. Instead, let’s build a national identity around:
Frugal engineering (read: not jugaad)
Platform-level thinking
Design-for-scale
Trusted manufacturing with ethical labor standards
India must become synonymous with reliable, skilled, high-leverage output — not just affordable effort.
The goal: Value per worker, not cost per worker
Every policy, every investment, every reform must ask:
“Will this make the Indian worker more valuable next year than they are today?”
If the answer is no, we’re scaling sideways, not upwards.
Conclusion: From Labor-Rich to Value-Rich
India has the numbers. We have the youngest population, a growing industrial base, world-class digital infrastructure, and a global moment of attention. But we must decide what kind of economy we want to become.
Do we want to be known for our volume, or for our value?
Do we want to build for the world’s cost advantage, or for our own capability advantage?
Do we want to keep exporting labor hours, or start exporting ideas, systems, and ownership?
We are labor-rich, yes; but that’s not the endgame.
The goal is to become value-rich.
To go from “we can do it cheaper” to “no one can do it like us.”
That requires:
A mindset shift from cheapness to excellence
A policy shift from output to outcomes
A public narrative shift from pride in numbers to pride in capability
India doesn’t need to replicate China’s 1990s strategy. We can leapfrog it — if we chooses to design differently.
This is our decade.
But it won’t be won by labor alone. It will be won by moving fast, and moving up.