Despite a weakening rupee that has put India in the bracket of Asian countries with the worst performing currency, the economy’s export numbers look impressive in the aggregate. However, a closer reading of the data reveals a far more uneven and structurally revealing story. When stripped of national aggregates, the data reveals a sharp divergence in performance across regions. A rigorous interrogation of the RBI Handbook of Statistics on Indian States 2024-25 reveals underlying structural dynamics.
A core-periphery pattern
The geography of India’s trade is becoming perilously lopsided as the export engine is being powered by a shrinking cluster of States. The top five exporters — Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh — now command nearly 70% of the national export basket. This creates a deceptive narrative where the national average masks a deepening regional crisis — where exports are becoming agglomerated rather than being dispersed across the nation. Firms are increasingly benefiting from spatial clustering, and not spreading out to newer regions.
Half a decade ago, the top five States contributed roughly 65% of national exports. That figure has now crept close to 70%. In technical terms, the Herfindahl-Hirschman Index (HHI), a standard metric used to gauge market concentration, of India’s export geography is rising, signalling that India’s export geography is becoming dangerously top-heavy. Instead of regions which are lagging behind trying to catch up to these States, we are witnessing a hardening core-periphery pattern. The coastal belts of the south and west are integrating tighter into global supply chains while the vast demographic heartland of the north and the east are effectively decoupling from the trade engine.
To understand why this divergence is accelerating, one must look beyond domestic policy to the tightening constraints of today’s global trading environment.
Shifting from volume to value
The window for low-skill, labour-intensive industrialisation that allowed countries like Bangladesh or Vietnam to plug into the world economy is closing. WTO data indicates a structural slowing of merchandise trade volume growth to a band of 0.5-3%. The UN Trade and Development (UNCTAD) 2023 report estimates show that the top 10 global exporters control approximately 55% of world merchandise trade. In this environment, global capital is not merely seeking low-cost labour which was the traditional advantage of India’s hinterland. In today’s global economy, capital is no longer drawn merely to low costs but to high economic complexity. Research in economic complexity shows that economies with more diverse and tightly connected export baskets are far better positioned to transition into higher-value production.
Product space visualisations reveal a networked structure in which sophisticated goods, such as machinery and automotive components, cluster in dense core areas, enabling relatively smooth movement into adjacent advanced technologies. In contrast, regions whose export baskets are concentrated in sparsely connected, peripheral areas face steep barriers to structural upgrading, as they lack the underlying capabilities required to enter complex value chains.
The tragedy of this divergence is compounded by a shift in the nature of production itself. It undermines the long-held assumption that export expansion would automatically absorb surplus labour. For decades, development theory assumed export expansion would serve as the primary bridge from agriculture to mass industrial employment. That link is now broken.
We are witnessing a clear trend of capital deepening where the ratio of capital to labour increases permanently. The Annual Survey of Industries (ASI) 2022-23 data reveals a “smoking gun” where fixed capital investment grew by roughly 10.6% while employment growth lagged at just 7.4%. The factory floor is becoming more expensive and less labour-absorptive as the fixed capital per person engaged has risen to ₹23.6 lakh. We are exporting value rather than volume of employment. This effectively bypasses the labour-intensive phase of industrialisation that East Asian economies utilised to build their middle classes.
Capital over the worker
The Periodic Labour Force Survey (PLFS) corroborates this capital bias from the household side. If the export boom were truly labour-intensive, we would expect a sharp structural shift of workers into factory jobs. Instead, the latest PLFS data indicates that the manufacturing sector’s share of total employment has stubbornly hovered around 11.6%-12%. This stagnation persists even as export values hit record highs. It implies that the elasticity of employment with respect to export growth has collapsed. The jobs being created are not in the labour-absorbing factories of the hinterland but in the capital-intensive hubs of the coast.
This capital bias is further evidenced by the structural compression in the wage share of Net Value Added (NVA). ASI data indicates that as productivity rises in automated sectors like petrochemicals or precision electronics, the gains accrue disproportionately to capital owners rather than wage earners.
The worker is becoming less central to the production process. This explains why we see high GDP growth in industrial States without a commensurate explosion in mass prosperity. Even the PLI-driven surge in electronics exports, growing over 47% year-on-year, is spatially sticky. It remains locked in specific districts in Kancheepuram or Noida because the complexity of these supply chains requires a logistics precision that does not exist outside these industrial islands.
The failure of the hinterland to converge is ultimately a failure of state capacity and financial depth. It creates a vicious cycle where the poor subsidise the rich. The RBI’s data on Credit-Deposit (CD) Ratios offers a stark financial MRI of this divide. In export powerhouses like Tamil Nadu and Andhra Pradesh, the CD ratio frequently surpasses 90%. This implies a high velocity of money where local savings are aggressively recycled into local industry. In contrast, in the hinterland States of Bihar and eastern Uttar Pradesh, the ratio languishes below 50%. This indicates a perverse form of capital flight where the savings of the hinterland are deposited in banks only to be lent out to projects in the industrialised coast. These financial constraints are compounded by persistent human capital deficits in low-export States, constraining their ability to generate the skilled, healthy workforce required for integration into high-complexity global value chains.
Need for new metrics
What emerges from this evidence is a quiet but profound shift. Exports in India are no longer operating as a lever of structural transformation but have become 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. In this sense, export performance is increasingly a mirror of accumulated industrial wealth rather than a pathway toward building it.
If export-linked industrial policy may no longer generate labour-intensive employment, and not catalyse convergence, then the role of an open economy in India’s development strategy must be carefully re-examined. Treating export growth as a proxy for inclusive economic prosperity for all risks mistaking outcomes for instruments. It also signals a gap between hope and reality. The danger is not that India misses global trade opportunities, but that it is perhaps measuring progress using a metric that increasingly reflects past advantages rather than future inclusion.
Deepanshu Mohan is professor and dean, O.P. Jindal Global University and Director, Centre for New Economics Studies (CNES). He is a visiting professor at LSE and a visiting fellow at University of Oxford. Ankur Singh is a Research Assistant with CNES, O.P. Jindal Global University.
Published – December 24, 2025 08:30 am IST
