Indian Economy
Shrinking Clusters of India’s Exports
- 26 Dec 2025
- 13 min read
For Prelims: Reserve Bank of India, Credit–Deposit (CD) ratios, Unified Logistics Interface Platform, Export Promotion Capital Goods
For Mains: Export-led growth and structural transformation in India, Regional imbalance and core–periphery pattern in Indian economy, Employment elasticity of exports and capital deepening.
Why in News?
The Reserve Bank of India Handbook of Statistics on Indian States 2024–25 shows that India’s export growth is increasingly concentrated in a few States, raising concerns that exports may now reflect existing regional advantages rather than driving broad-based development.
Summary
- Nearly 70% of India’s exports come from five States, indicating a core–periphery pattern where coastal regions integrate into global trade while large hinterland areas are left out.
- Capital-intensive export growth has weakened the export–employment link, with manufacturing jobs stuck at 11.6–12% despite rising export values.
What does the RBI Reveal About India’s Export Structure?
- Concentrated in Just a Few States: Nearly 70% of India’s exports now come from just five States: Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh.
- Five years ago, this share was about 65%, showing a clear rise in concentration.
- Core-Periphery Pattern: The export engine is being powered by a shrinking cluster of states, leading to an increasingly lopsided export geography.
- Coastal belts in the south and west are integrating tightly into global supply chains, while the demographic heartlands of the north and east are effectively "decoupling" from India's trade engine.
- Rising Market Concentration: The Herfindahl-Hirschman Index (HHI) for India's exports is increasing, signaling a rise in market concentration and a top-heavy export structure.
- The lagging regions are not catching up, further deepening this divide.
India’s Export Landscape
- India’s exports hit a record USD 825.25 billion in 2024–25 and rose to USD 418.91 billion in April–September 2025, the highest-ever first-half performance, driven mainly by strong services exports and resilient non-petroleum merchandise exports.
- Key sectors such as electronics, engineering goods, pharmaceuticals, marine products and rice, along with robust demand from the USA, UAE, China, Spain and Hong Kong, sustained this momentum, as India targets US$ 2 trillion in total exports by 2030.
- Overall, India's global export share grew from 1.2% in 2005 to 2.4% in 2023.
What are the Challenges Arising from Concentration of Exports in a Few States?
- Breakdown of the Export–employment Link: Export expansion no longer translates into mass industrial employment.
- Annual Survey of Industries (ASI) 2022–23 data shows fixed capital investment growing by about 10.6%, while employment increased by only 7.4%, indicating capital deepening.
- With fixed capital per worker rising to Rs 23.6 lakh, factories are becoming more capital-intensive and less labour-absorbing, meaning exports increasingly generate value without creating proportional employment, weakening their traditional role in driving structural transformation.
- Manufacturing’s share in total employment has stagnated at 11.6 - 12% despite record exports, indicating that export growth is concentrated in capital-intensive hubs rather than creating jobs in labour-surplus hinterland States.
- Spatial Lock-in of High-growth Export Sectors: Under the PLI scheme, electronics exports grew by over 47% year-on-year, yet remain concentrated in specific districts such as Kancheepuram and Noida.
- The complexity and logistics precision required by these supply chains prevent their diffusion to less-developed regions, reinforcing export concentration.
- Financial Drain from Poorer States: RBI data on Credit–Deposit (CD) ratios reveals a stark divide. Export powerhouses like Tamil Nadu and Andhra Pradesh record CD ratios above 90%, indicating strong recycling of local savings into local industry.
- In contrast, Bihar and eastern Uttar Pradesh have CD ratios below 50%, showing that savings mobilised in poorer States are lent out to industrialised coastal regions, creating a perverse capital outflow.
- The failure of the hinterland to converge with growth centres reflects weak state capacity and shallow financial depth, reinforcing regional inequality.
- Weak State and Human Capital Deficits: Low-export States suffer from persistent deficits in skills, health, infrastructure, and institutional capacity.
- These constraints limit their ability to participate in high-complexity global value chains, making it difficult for them to upgrade their export baskets or attract global capital, and thereby perpetuating regional divergence.
- Vulnerability to Global Trade Slowdown: The global window for low-skill, labour-intensive industrialisation used by countries like Bangladesh and Vietnam to integrate into world trade is rapidly closing.
- Global capital is no longer chasing just low-cost labor (the hinterland's advantage). It now seeks "high economic complexity", with World Trade Organization (WTO) data indicating merchandise trade volume growth slowing to 0.5–3% and UN Trade and Development (UNCTAD) 2023 showing that the top 10 exporters control around 55% of world trade.
- In such a context, India’s reliance on a narrow set of export States increases vulnerability to region-specific shocks.
What Measures can Drive a Sustainable Transformation in India’s Export Sector?
- Strengthen Lagging State Capacity: Use PM Gati Shakti to close infrastructure gaps in low-export States through integrated planning of roads, railways, ports, and logistics.
- Expand Industrial Corridor Projects and ensure their spread beyond coastal States into the hinterland.
- Improve port-led development through Sagarmala and inland connectivity via Bharatmala. Reduce transaction costs using the National Logistics Policy and Unified Logistics Interface Platform (ULIP).
- Rebalance Export Policy for Employment: Under Export Promotion Mission (EPM), reorient Production Linked Incentive (PLI schemes to include explicit weightage for employment intensity, not just output or investment.
- Encourage labour-absorbing sectors such as textiles, food processing, footwear, and MSME manufacturing alongside high-tech sectors.
- Human Capital Aligned with Export Needs: Align Skill India Mission, PM Kaushal Vikas Yojana (PMKVY), and Samarth (for textiles) with export-oriented value chains.
- Improve Access to Finance in Low-export States: Address low Credit–Deposit ratios through MUDRA, and Stand-Up India to improve MSME credit flow.
- Use Development Finance Institutions (DFIs) and credit guarantees to crowd in private investment in lagging regions.
- Leverage Districts as Export Hubs (DEH) to identify district-specific export potential and reduce over-concentration. Link One District One Product (ODOP) with export facilitation, branding, and global market access.
- Align trade policy with regional convergence: Use Export Promotion Capital Goods (EPCG) and Remission of Duties and Taxes on Exported Products (RoDTEP) to incentivise firms locating in backward regions.
- Encourage states to develop region-specific export strategies aligned with local capabilities.
- Integrate export assessment with outcomes under Aspirational Districts Programme to track inclusive development.
Conclusion
India’s export growth now mirrors existing regional strengths rather than driving inclusive development. Rising concentration and capital-intensive exports have weakened job creation and regional convergence. Sustainable transformation requires employment-focused, regionally balanced export policies.
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Drishti Mains Question: “India’s export growth increasingly reflects existing regional strengths rather than driving inclusive development.” Critically examine. |
Frequently Asked Questions (FAQs)
Q. What is the key export-related finding of the RBI Handbook of Statistics on Indian States 2024–25?
It shows that nearly 70% of India’s exports originate from five States, up from about 65% five years ago, indicating rising export concentration.
Q. Which States dominate India’s export basket?
Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh together account for the majority of India’s exports.
Q. What does the rising Herfindahl–Hirschman Index (HHI) indicate in India’s export structure?
An increasing HHI reflects growing market concentration and a more top-heavy export geography, with lagging regions failing to catch up.
Q. Why is export growth not translating into employment generation?
According to ASI 2022–23, fixed capital grew by ~10.6% while employment rose by only ~7.4%, showing capital deepening and declining labour absorption.
UPSC Civil Services Examination, Previous Year Questions (PYQs)
Q1. Increase in absolute and per capita real GNP do not connote a higher level of economic development, if (2018)
(a) Industrial output fails to keep pace with agricultural output.
(b) Agricultural output fails to keep pace with industrial output.
(c) Poverty and unemployment increase.
(d) Imports grow faster than exports.
Ans: (c)
Q2. The SEZ Act, 2005 which came into effect in February 2006 has certain objectives. In this context, consider the following: (2010)
- Development of infrastructure facilities.
- Promotion of investment from foreign sources.
- Promotion of exports of services only.
Which of the above are the objectives of this Act?
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
Ans: (a)
Q3. A “closed economy” is an economy in which (2011)
(a) the money supply is fully controlled
(b) deficit financing takes place
(c) only exports take place
(d) neither exports or imports take place
Ans: (d)
