New Delhi [India]: A report by HSBC has highlighted that India’s export growth over the past decade has been significantly hindered by high import tariffs and low foreign direct investment (FDI) in mid-tech manufacturing sectors. The report also suggests that potential trade tariffs under U.S. President Donald Trump’s administration could act as a catalyst for change if India implements deeper economic reforms.
The report stated, “The combination of high import tariffs and low FDI in mid-tech sectors has hurt India’s export potential over the past decade. One positive from the potential US trade tariffs is that they could become a catalyst for change, but reforms must run deep.”
The study examined India’s economic performance over two distinct periods:
- The “high growth” decade (FY01-FY10), characterized by rapid economic expansion, a growing global export share, and robust investment inflows.
- The “lower growth” decade (FY11-FY20), during which these factors weakened considerably.
During the latter period, India’s FDI inflows were less focused on mid-to-low-tech industries such as food processing, apparel, furniture, and toys—sectors crucial for job creation and enhancing export competitiveness.
The analysis revealed that India did not capitalize on shifts in global supply chains as effectively as Southeast Asian nations, especially the ASEAN countries. Vietnam, for instance, gained significantly in industries like electronics, apparel, and footwear, positioning itself as a key alternative to China.
In contrast, India’s efforts to attract FDI in similar sectors lagged behind despite its potential. The report suggested that India might have a second chance if global supply chains are restructured again under Trump’s leadership. With new tariffs likely to be imposed on major exporting nations like China, global businesses might seek alternative production bases.
This situation could create opportunities for India to strengthen its position in mid-tech manufacturing and labor-intensive sectors. However, the report also cautioned that for India to capitalize on these opportunities, significant policy changes and structural reforms are necessary.
While acknowledging India’s progress in sectors such as electronics, the report emphasized the need for further efforts to enhance competitiveness, attract investment, and integrate more deeply into global supply chains.
Despite the potential for long-term gains, the report warned that in the short term, uncertainties in global trade and economic conditions could impact India’s GDP growth. It stressed that proactive reforms would be crucial to ensure India does not miss out on the next wave of global trade realignments.