Recasting India’s Export Competitiveness

• 26 Feb 2026

This editorial is based on “Export Promotion Mission thoughtfully structured; impact uncertain” which was published in The Business Standard on 26/02/2026. This editorial provides a deep-dive analysis of India's evolving trade landscape, contrasting the high-growth potential of defense and electronics with systemic logistics and green-tax hurdles. It offers a strategic roadmap for a $2 trillion export economy through digital trade architecture, GVC integration, and structural policy reforms.

For Prelims:Production Linked Incentive (PLI) Scheme, PM Gati Shakti, Sanitary and Phytosanitary (SPS) Measures, Export Promotion Mission (EPM).

For Mains: Key developments in the export sector, issues associated with the export sector.

India’s export sector is undergoing a strategic metamorphosis, evolving from a reliance on traditional commodities to becoming a high-tech manufacturing hub fueled by the "Make in India" initiative. While the Export Promotion Mission (EPM) and its ₹25,060 crore outlay address structural bottlenecks like trade finance and compliance, the broader vision integrates digital trade reforms and global value chain participation. By diversifying into electronics, renewables, and defense, India is positioning itself not just as a global supplier, but as a resilient alternative in the shifting landscape of international trade.

What are the Emerging Growth Drivers in India’s Export Economy?

• Electronics & Premium Smartphone Manufacturing: India is rapidly transitioning from a basic assembly destination to a sophisticated global manufacturing hub, aggressively capturing the "China Plus One" supply chain realignment. 
  • This structural pivot is strictly fueled by Production-Linked Incentive (PLI) schemes that actively incentivize deep-tier component manufacturing and localized ecosystems. 
    • Consequently, the sector has shifted toward high-value premium devices, permanently altering India's export basket and generating massive employment. 
  • For instance, smartphone exports reached a record $30 billion in CY2025 driven heavily by Apple, pushing total electronics exports past the ₹4 trillion milestone.
• Services Sector Dominance & GCC Expansion: The services sector acts as the primary anchor for India’s external trade resilience, effectively cushioning merchandise trade deficits caused by global macroeconomic headwinds. 
  • This structural advantage now transcends basic IT outsourcing, driven by the exponential growth of Global Capability Centers (GCCs) delivering high-end R&D, AI, and financial solutions. 
  • By aggressively climbing the technological value chain, Indian knowledge exports are cementing their absolute indispensability in global corporate operations. 
    • For example, services exports touched an all-time high of $387.6 billion in FY25, with January 2026 alone contributing an estimated $43.90 billion.
• Defense Indigenization and Strategic Export Pivot: India has orchestrated a profound strategic reversal, pivoting from historical import reliance to aggressively emerging as a credible net exporter of advanced military hardware. 
  • This transformation is underpinned by the 'Atmanirbhar Bharat' mandate, negative import lists, and the deep integration of private MSMEs into the defense manufacturing ecosystem. 
    • Defence Public Sector Undertakings (DPSUs) and other PSUs accounted for approx. 77% of total production, while the private sector contributed 23%.
  • By securing international contracts for complex weapons systems, India simultaneously achieves strategic defense autonomy and establishes new geoeconomic leverage across the Global South. 
  • For instance, defense exports surged to a record ₹23,622 crore ($2.8 billion) in FY24-25. India now exports to over 100 nations, including to the United States, France and Armenia. 
    • Also, India is pursuing significant export deals for BrahMos missiles, with countries like Vietnam and Indonesia (after a successful deal with Philippines).
• Strategic Trade Diversification & FTA Utilization: To mitigate systemic risks from demand contraction in traditional Western economies, India has executed a calculated diversification of its export destinations and product portfolios. 
  • The proactive operationalization of recent Free Trade Agreements (FTAs) is aggressively dismantling non-tariff barriers and embedding Indian exporters deeply into complex regional value chains. 
    • This multidimensional hedging strategy ensures that isolated geopolitical shocks or localized downturns do not disproportionately derail India's long-term macroeconomic momentum. 
  • For instance, the India–EFTA Trade and Economic Partnership Agreement (TEPA), guarantees a landmark, legally binding FDI commitment of $100 billion over 15 years. 
    • Additionally, recent agreements such as the India–EU FTA and the India–New Zealand FTA, provide tariff elimination on several key Indian exports.
  • Reflecting this, UNCTAD currently ranks India third in the Global South for trade diversification.
• High-Value Pharmaceuticals & Engineering Upgradation: India's legacy strongholds in engineering and pharmaceuticals are experiencing a critical qualitative renaissance, systematically moving from low-margin volumes to complex, compliance-heavy categories. 
  • The pharmaceutical sector is evolving far beyond basic generics to produce advanced biologicals, successfully capturing highly regulated global healthcare markets. 
  • Similarly, engineering exports are upgrading via advanced manufacturing to cater directly to high-tech global automotive, aviation, and infrastructure supply chains.
    • For instance, Engineering goods exports surpassed the $10.40 billion mark in January 2026.
  • Further, Overall pharmaceutical exports rose 9.4% to $30.47 billion in FY25, crossing the $30 billion milestone.
• Cross-Border E-Commerce & D2C Globalization: India's cross-border e-commerce is rapidly evolving into a structural pillar of international trade, aggressively democratizing global market access for domestic MSMEs and artisanal clusters. 
  • Propelled by the Foreign Trade Policy's dedicated mandate and the expansion of integrated logistical hubs like Dak Niryat Kendras, grassroots producers are seamlessly integrating into international B2C supply chains. 
  • This targeted digital globalization deliberately shifts the export paradigm from traditional bulk B2B shipments to high-margin, direct-to-consumer (D2C) retail across global marketplaces. 
  • Reflecting this institutional push, India is actively targeting $200 to $300 billion in e-commerce exports by FY30, leveraging a domestic D2C segment projected to grow at a 40% CAGR to reach $60 billion by 2027.
• Agricultural Resilience & Value-Added Food Processing: The agricultural export sector is deliberately transitioning from volatile raw commodity shipments to climate-resilient, value-added processed foods, securing a robust global trade surplus despite geopolitical headwinds. 
  • Backed by expansive APEDA market intelligence and the operationalization of domestic Mega Food Parks, Indian agri-businesses are decisively capturing highly lucrative international niches in ready-to-eat meals and organic millets. 
    • For instance, agricultural exports maintained a formidable $51.9 billion milestone in 2025.
• Clean Energy Manufacturing & Solar Module Exports: India is aggressively capitalizing on global energy transition realignments, positioning its domestic manufacturing as the premier, risk-mitigated alternative to Chinese dominance in clean energy supply chains.
  • Supercharged by multi-billion-dollar Production-Linked Incentive (PLI) allocations, domestic solar PV manufacturing has achieved unprecedented scale, swiftly converting historical import dependency into export supremacy. 
  • By actively capturing demand from Western markets executing strict geopolitical de-risking and anti-dumping measures, India is successfully embedding its clean tech components into the multi-trillion-dollar global decarbonization mandate. 
  • Highlighting this rapid momentum, India's solar module exports rose 30.7% in April-October 2025, with the US accounting for almost the entire increase in shipment value.

What are the Key Issues Associated with India’s Export Sector? 

• Structural Logistics Constraints: Despite the push under PM Gati Shakti and a recent decline in logistics costs as a percentage of GDP, India’s logistics cost remains a structural disadvantage compared to peer manufacturing hubs, primarily due to an over-reliance on road transport over more efficient rail or inland waterways. 
  • This modal imbalance, combined with "last-mile" inefficiencies at secondary ports, inflates the final landed cost of Indian goods, making them less competitive in price-sensitive global markets. 
  • For instance, roads dominate with about 71% of freight movement, railways carry around 18%, while Inland Water Transport remains marginal at just 2%.
    • In contrast, countries like China rely far more on railways for bulk cargo movement, significantly lowering logistics costs and enhancing export competitiveness.
• The CBAM and Green Protectionism Hurdle: The European Union’s Carbon Border Adjustment Mechanism (CBAM), which entered its financial phase in January 2026, poses a severe threat to India’s carbon-intensive exports like steel, aluminum, and cement. 
  • Many Indian MSMEs lack the sophisticated "carbon accounting" infrastructure required for compliance, risking either high carbon taxes or total exclusion from the lucrative EU market. 
  • Recent data suggests Indian steel exporters may face an additional tax burden of 20–35%, potentially wiping out the price advantage of Indian-made primary metals in Europe.
    • Although India has strategically secured a Most Favoured Nation (MFN) clause to guard against discriminatory carbon pricing, the real challenge lies in the practical implementation and harmonization of these complex extraterritorial compliance mechanisms.
• MSME Credit Gap and Formalization Stress: While the MSME sector is the backbone of Indian exports, it continues to suffer from a massive structural credit gap that prevents small firms from scaling up to meet global quality standards. 
  • The transition to a "formalized" digital economy has increased short-term compliance costs, and many small exporters find it difficult to secure collateral-free working capital despite various government guarantee schemes. 
  • The current credit gap for MSMEs is estimated at a staggering ₹30 lakh crore, with high interest rates for export credit often being 2–4% higher than those available to global competitors.
• Low FTA Utilization and Information Asymmetry: India has signed several high-profile Free Trade Agreements (FTAs) recently, yet the "utilization rate" among domestic exporters remains disappointingly low due to complex Rules of Origin (RoO) and a lack of awareness. 
  • Many exporters continue to pay full MFN (Most Favored Nation) duties because the administrative cost of proving domestic value-addition outweighs the potential tariff benefits. 
  • For instance, while FTA trade grows at 12%, the actual utilization rate for older agreements remains below 25%, compared to 70–80% in advanced trading nations.
• Inverted Duty Structures in Manufacturing: A persistent "Inverted Duty Structure"where raw materials are taxed at a higher rate than finished products continues to disincentivize domestic value-addition in critical sectors like electronics and chemicals. 
  • This makes it cheaper to import the final product than to manufacture it locally for export, effectively "exporting" potential jobs and manufacturing growth to other nations.
  • For example, raw materials like rubber or specialty chemicals often have higher tax rates compared to finished goods in India, making imported tyres cheaper to bring in than producing them domestically.
  • Additionally, India’s historical dependence on China for over 70% of its API requirements exposes the rapidly growing pharmaceutical export sector to critical supply disruptions and arbitrary price hikes.
• Non-Tariff Barriers (NTBs) and Quality Compliance Issue: Indian exporters increasingly face sophisticated Non-Tariff Barriers, such as stringent Sanitary and Phytosanitary (SPS) measures in the US and EU, which often act as "hidden protectionism" against Indian agri-products. 
  • The lack of globally accredited testing laboratories at the local cluster level means that even high-quality products are frequently rejected at destination ports due to minor procedural or residue mismatches. 
  • Under the Harmonized System code HS04, which includes dairy products as well as eggs and honey, India faced 344 shipment rejections in the United States and Australia between 2010 and 2024.
• Concentration Risk in the Export Basket: Despite efforts to diversify, India’s merchandise export basket remains heavily concentrated in a few categories like petroleum products and gems & jewelry, which are highly sensitive to global commodity price swings. 
  • This lack of "depth" in high-technology manufacturing (outside of smartphones) leaves the overall trade balance vulnerable to external shocks and shifts in global demand. 

What Measures are Needed to Strengthen India’s Export Competitiveness? 

• Unified Digital Trade Architecture (TRACE): India must operationalize an end-to-end, AI-driven "Single Window 2.0" that merges customs, shipping lines, and quality certification bodies into a real-time interoperable ecosystem. 
  • By automating "Rules of Origin" verification and implementing "Trusted Supplier" green-channel clearances, the state can eliminate the bureaucratic friction that currently delays shipment cycles. 
  • This digital-first approach institutionalizes transparency and drastically reduces the high compliance cost for MSMEs entering complex global value chains.

• Strategic "GVC-First" Component Manufacturing: Policy must pivot from final assembly to deep-tier component manufacturing by aggressively expanding "Sovereign Industrial Corridors" dedicated to high-tech sub-assemblies. 
  • Through targeted PLI 3.0 schemes for rare earth processing, semiconductor materials, and chemical intermediates, India can secure its upstream supply chain and reduce "imported inflation" within its export goods. 
  • This structural deepening ensures that the domestic value-add increases, transforming India from a packaging hub into a global design and manufacturing anchor.
• Green Transition and "Carbon-Neutral" Branding: With the EU’s CBAM and global ESG mandates becoming non-negotiable, India needs a national "Green Export Credit" facility to subsidize the decarbonization of energy-intensive sectors like steel and textiles. 
  • Establishing indigenous "Carbon Accounting" frameworks and accredited green-labeling bodies will allow Indian exporters to bypass predatory carbon taxes at destination ports. 
  • This proactive environmental compliance turns a potential trade barrier into a unique competitive advantage, positioning "Made in India" as a premium sustainable choice.
• Port-Led Industrialization and Modal Rebalancing: To resolve the logistics bottleneck, India must fast-track the integration of Dedicated Freight Corridors (DFCs) directly into automated "Mega Ports" to ensure a seamless "Rail-to-Ship" transition. 
  • Shifting the logistics mix from road to cost-effective coastal shipping and inland waterways will structurally deflate the landed cost of Indian exports by at least 20-30%. 
  • Integrating "Multi-Modal Logistics Parks" (MMLPs) with specialized cold-chain and hazardous-material storage will allow for the export of high-value perishables and specialized chemicals.
• Institutionalized FTA Utilization Hubs: The government should establish "FTA Facilitation Centers" at the district level to provide granular, commodity-specific intelligence on tariff benefits and non-tariff barriers in partner countries. 
  • By deploying "Trade Attaches" focused solely on on-ground market intelligence and B2B matchmaking in emerging markets like the GCC and Africa, India can move beyond signing pacts to actually harvesting them. 
  • Addressing information asymmetry ensures that small-scale exporters can navigate complex legalities and utilize preferential duties to outcompete regional rivals.
• Diversified Trade Finance and Export Factoring: Strengthening the export sector requires moving beyond traditional bank loans to a robust "Export Factoring" and "Deep-Tier Financing" ecosystem that provides immediate liquidity against digital invoices. 
  • By integrating TReDS with international trade platforms, MSMEs can unlock working capital without collateral, mitigating the "liquidity trap" caused by long global payment cycles. 
  • Establishing a "Sovereign Export Insurance Fund" with higher risk-appetite for non-traditional markets will embolden exporters to explore high-growth regions in Latin America and Central Asia.
• Global E-Commerce Export Hubs (ECEHs): Creating specialized "E-Commerce Export Zones" with simplified "Return & Re-export" policies and integrated courier terminals is essential for capturing the global B2C retail wave. 
  • These hubs should offer "bonded warehousing" and automated GST refunds for small-value shipments, allowing Indian D2C brands to compete directly on global platforms like Amazon and Etsy. 
  • This measure democratizes exports, allowing artisanal and "One District One Product" (ODOP) clusters to reach global consumers without the need for traditional bulk distributors.
• Quality Harmonization and Global Standards Alignment: India must pursue "Mutual Recognition Agreements" (MRAs) with major trading partners to ensure that Indian laboratory certifications are accepted globally without redundant testing. 
  • Investing in "National Quality Infrastructure" and state-of-the-art testing clusters will bridge the gap between domestic production and hyper-stringent international SPS (Sanitary and Phytosanitary) standards. 
  • This measure prevents the frequent rejection of agri-products and pharmaceuticals, safeguarding India’s reputation as a reliable, high-standard supplier in the global marketplace.

Conclusion: 

• India’s export trajectory is transitioning from a volume-driven commodity base to a value-driven high-tech ecosystem, bolstered by strategic indigenization and supply chain realignment. While structural hurdles like high logistics costs and green protectionism persist, the integration of digital trade architecture and GVC-focused manufacturing offers a resilient pathway. Ultimately, the success of this metamorphosis depends on the seamless execution of the Export Promotion Mission and the active utilization of global trade agreements. Achieving the $2 trillion export target by 2030 remains a tangible reality if India continues to balance competitive pricing with global quality standards.

Drishti Mains Question 

"India is pivoting from being a global back-office to a global manufacturing front-office." Critically analyze this statement in the context of recent developments in the electronics and defense export sectors.

 

FAQs

1. What is the Export Promotion Mission (EPM) outlay?

It is a ₹25,060 crore initiative designed to address structural bottlenecks in trade finance and compliance.

2. How does the "Inverted Duty Structure" affect manufacturing?

It makes raw materials costlier than finished goods, disincentivizing domestic value-addition and favoring imports.

3. What is the 2030 target for India’s e-commerce exports?

India aims to achieve between $200 billion and $300 billion in annual e-commerce exports by FY30.

4.Which sector recorded the highest service export growth recently?

Global Capability Centers (GCCs) providing high-end R&D and AI solutions have been the primary growth drivers.

5. What is the main threat from the EU's CBAM?

It imposes a carbon tax on carbon-intensive imports like steel and aluminum, potentially raising costs by 20–35%

UPSC Civil Services Examination, Previous Year Questions (PYQs) 

Prelims: 

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) 

1. Development of infrastructure facilities. 
2. Promotion of investment from foreign sources. 
3. 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)