India’s Export Boom Masks a Growing Regional Divide

India’s weakening rupee has placed it among Asia’s poorer-performing currencies, yet headline export numbers continue to look robust. At first glance, this appears reassuring. But a closer interrogation of the data — particularly the “RBI Handbook of Statistics on Indian States 2024–25” — tells a far more uneven and structurally revealing story. Behind the national aggregates lies a deepening regional divergence that raises uncomfortable questions about the role of exports in India’s development trajectory.

A Core–Periphery Pattern Is Hardening

India’s export geography is becoming increasingly concentrated. Five States — Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh — now account for nearly 70% of the country’s exports. Just five years ago, their combined share was closer to 65%. What looks like incremental change is, in structural terms, significant.

Economists measure such concentration using the Herfindahl–Hirschman Index (HHI). Applied to India’s export geography, the index is rising, signalling a system that is becoming more top-heavy. Instead of lagging regions catching up, a core–periphery pattern is hardening. Coastal and near-coastal belts in the west and south are integrating more tightly into global supply chains, while much of northern and eastern India is effectively decoupling from the export engine.

The danger here is narrative as much as numbers. National averages conceal a regional crisis, where export growth is increasingly an outcome of spatial agglomeration rather than dispersed industrialisation.

Why Global Trade Conditions Matter More Than Before

This divergence cannot be explained by domestic policy alone. The global trading environment itself has shifted. According to data from the World Trade Organization, merchandise trade volume growth has structurally slowed to a narrow band of 0.5–3%. Meanwhile, the UN Trade and Development estimates that the top 10 exporting countries now control about 55% of global merchandise trade.

In such an environment, global capital is no longer searching primarily for low-cost labour — the traditional comparative advantage of India’s hinterland. Instead, it is drawn to economic complexity: locations that already possess dense networks of suppliers, skilled labour, logistics and institutional capacity.

From Labour to Complexity: The Changing Nature of Exports

Research on economic complexity shows that sophisticated products — machinery, electronics, automotive components — cluster in dense “product spaces”. Regions embedded in these cores can upgrade incrementally into higher-value production. Peripheral regions, whose exports are concentrated in sparsely connected products, face steep barriers to entry.

India’s export leaders occupy these dense cores. Much of the hinterland does not. This explains why firms benefit from clustering rather than dispersing into newer regions. Export success today reflects accumulated capabilities, not simply cheap labour or policy incentives.

Why Export Growth Is No Longer Creating Mass Jobs

Perhaps the most troubling implication of this shift is its impact on employment. For decades, development theory assumed that export expansion would absorb surplus labour, moving workers from agriculture into factories. That link is weakening.

Data from the Annual Survey of Industries 2022–23 offers a telling signal. Fixed capital investment grew by about 10.6%, while employment rose only 7.4%. Fixed capital per worker has climbed to ₹23.6 lakh. Indian manufacturing is becoming more capital-deep and less labour-absorptive.

In effect, India is exporting value rather than volumes of employment, bypassing the labour-intensive industrial phase that powered East Asian middle-class formation.

What the Labour Data Confirms

Household-side evidence reinforces this picture. The Periodic Labour Force Survey shows manufacturing’s share of total employment stubbornly stuck around 11.6–12%, even as export values hit record highs.

If exports were driving labour-intensive growth, a clear shift into factory jobs would be visible. Instead, the elasticity of employment with respect to export growth has collapsed. Job creation is concentrated in capital-intensive coastal hubs, not across the broader economy.

Finance, State Capacity and the Hinterland Trap

The failure of convergence is also financial. RBI data on Credit–Deposit ratios provides a stark diagnostic. In export-heavy States such as Tamil Nadu or Andhra Pradesh, ratios often exceed 90%, indicating that local savings are recycled into local industry. In contrast, States like Bihar or eastern Uttar Pradesh languish below 50%.

This implies a quiet transfer of capital: hinterland savings flow into banks but are lent out to industrial projects elsewhere. Combined with weaker human capital outcomes, this traps low-export States in a vicious cycle of underinvestment and exclusion from high-complexity value chains.

Rethinking Exports as a Development Metric

What emerges is a profound shift. Exports in India are no longer a lever of structural transformation; they are increasingly an outcome of pre-existing structural capacity. States do not export their way into development — they export because they are already developed enough to do so.

This has major implications for policy. Treating export growth as a proxy for inclusive prosperity risks mistaking outcomes for instruments. In a world where capital intensity, complexity and agglomeration dominate, export performance reflects past advantages more than future inclusion.

The risk for India is not missing global trade opportunities, but relying on a metric that increasingly mirrors yesterday’s strengths rather than tomorrow’s shared prosperity.