India’s Export Surge Is Hiding a Dangerous Regional Imbalance

Despite a weakening rupee that places India among Asia’s worst-performing currencies, the country’s export numbers appear strong in the aggregate. But this headline strength masks a deeper and more troubling reality. A closer reading of granular data — particularly from the Reserve Bank of India’s “Handbook of Statistics on Indian States 2024–25” — reveals a sharp regional divergence that challenges long-held assumptions about exports as an engine of broad-based development.

How India’s Export Geography Is Becoming Top-Heavy

India’s export engine is increasingly being driven by a shrinking cluster of States. Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh together account for nearly 70% of national exports. Just five years ago, their share was closer to 65%. What seems like a modest shift signals a structural change: exports are becoming agglomerated rather than dispersed.

Economists capture this through the Herfindahl–Hirschman Index (HHI), a standard measure of concentration. Applied to India’s export geography, the rising HHI indicates a system becoming dangerously top-heavy. Instead of lagging regions catching up, a hard core–periphery pattern is emerging. The coastal belts of the west and south are integrating ever more tightly into global supply chains, while large parts of northern and eastern India are steadily decoupling from the trade engine.

Why National Averages Are Misleading

This concentration creates a deceptive narrative. Strong national export growth masks a deepening regional crisis. Firms increasingly benefit from spatial clustering — ports, logistics, skilled labour pools and dense supplier networks — rather than spreading into new regions. Export success, in other words, reflects where capacity already exists, not where policy hopes it will emerge.

A Global Trade Environment That Has Changed

To understand why this divergence is accelerating, one must look beyond domestic policy to the constraints of the global trading environment. Data from the World Trade Organization show that merchandise trade volume growth has structurally slowed to around 0.5–3%. Meanwhile, the UN Trade and Development estimates that the top 10 exporters control roughly 55% of world merchandise trade.

In this environment, global capital is no longer attracted merely by low-cost labour — the traditional advantage of India’s hinterland. Instead, it seeks high economic complexity: places with diversified, tightly connected production ecosystems capable of moving into higher-value activities.

From Labour Advantage to Economic Complexity

Research on economic complexity shows that sophisticated products — machinery, automotive components, advanced electronics — cluster in dense “product spaces”. Regions embedded in these cores can upgrade incrementally. Those stuck in peripheral, sparsely connected export baskets face steep barriers to entry into complex value chains.

India’s leading export States occupy these dense cores. Much of the hinterland does not. This explains why export growth is reinforcing existing industrial islands rather than catalysing new ones.

Why Export Growth Is No Longer Creating Mass Jobs

The consequences for employment are profound. For decades, development theory assumed export expansion would absorb surplus labour, moving workers from agriculture to factories. That link is breaking.

Data from the Annual Survey of Industries 2022–23 provide a clear signal. Fixed capital investment rose by about 10.6%, while employment increased by only 7.4%. Fixed capital per worker has climbed to ₹23.6 lakh. India is exporting value, not volumes of employment, effectively bypassing the labour-intensive industrial phase that powered East Asian development.

What Labour Market Data Confirms

Household-side evidence from the Periodic Labour Force Survey reinforces this trend. Manufacturing’s share of total employment has stagnated at around 11.6–12%, even as export values hit record highs.

If export growth were labour-intensive, a visible shift of workers into factory jobs would be evident. Instead, the elasticity of employment with respect to export growth has collapsed. Job creation is concentrated in capital-intensive coastal hubs, not in labour-absorbing factories across the hinterland.

Finance, State Capacity and the Hinterland Trap

The divergence is also financial. RBI data on Credit–Deposit ratios reveal a stark divide. In export-heavy States like Tamil Nadu and Andhra Pradesh, ratios often exceed 90%, meaning local savings are recycled into local industry. In States such as Bihar and eastern Uttar Pradesh, ratios remain below 50%.

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

Why India Needs New Metrics of Progress

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

Treating export growth as a proxy for inclusive prosperity risks mistaking outcomes for instruments. The danger is not that India misses global trade opportunities, but that it continues to measure progress using a metric that reflects past advantages rather than future inclusion.