How exports are concentrated in few States

Source: The post  “How exports are concentrated in few States” has been created, based on “How exports are concentrated in few States” published in “The Hindu” on 24th December 2025.

UPSC Syllabus: GS Paper-3- Indian Economy

Context: India’s aggregate export figures appear robust despite a weakening rupee and a challenging global environment. However, a disaggregated analysis reveals that exports are increasingly concentrated in a small number of States, exposing deep structural and regional imbalances. Export performance is no longer acting as a driver of convergence but as an outcome of prior industrial and institutional capacity.

Extent and Pattern of Export Concentration

1. Five States—Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh—account for nearly 70 percent of India’s total exports.
2. This share has risen from about 65 percent five years ago, indicating increasing spatial concentration.
3. The rising Herfindahl-Hirschman Index of export geography confirms a hardening core–periphery pattern.
4. Southern and western coastal States are integrating more deeply into global supply chains, while northern and eastern hinterland States are decoupling from the trade engine.

Structural Reasons for Export Concentration

1. Agglomeration and Spatial Clustering

• Export-oriented firms benefit from industrial clustering, which provides economies of scale, shared suppliers, skilled labour pools, and logistics efficiency.
• Established industrial belts attract new investment, while newer regions struggle to break into export networks.

2. Shift from Volume to Value in Global Trade

• Global merchandise trade volume growth has structurally slowed, reducing opportunities for late industrialisers.
• A small group of global exporters controls a majority of world trade, intensifying competition.
• Capital now flows towards regions with higher economic complexity rather than low-cost labour.

3. Economic Complexity and Product Space Constraints

• High-value exports such as machinery, automobiles, and electronics are located in dense product-space clusters.
• States with narrow and peripheral export baskets face steep barriers to upgrading into complex value chains.

4. Capital-Intensive Nature of Modern Exports

• India’s export growth is characterised by capital deepening, with fixed capital investment growing faster than employment.
• Rising capital per worker has reduced the labour-absorbing capacity of manufacturing exports.
• Export growth now generates value rather than large-scale employment.

5. Weak Employment Linkages

• Manufacturing employment has stagnated at around 11.6–12 percent of total employment despite record exports.
• The elasticity of employment with respect to export growth has declined sharply.

6. Financial and Institutional Asymmetries

• Export-intensive States exhibit high credit–deposit ratios, indicating strong recycling of local savings into local industry.
• Hinterland States display low credit–deposit ratios, reflecting capital outflows and financial exclusion.
• Persistent human capital deficits in lagging States constrain their integration into high-complexity exports.

Implications of Export Concentration

1. Export-led growth has failed to deliver mass industrial employment or regional convergence.
2. Wage shares in net value added have declined as productivity gains accrue disproportionately to capital owners.
3. High GDP growth in exporting States has not translated into broad-based prosperity.
4. Regional inequality risks becoming entrenched, undermining inclusive and sustainable development.

Way Forward

1. Industrial policy must shift from output-based incentives to capability-building in lagging States through infrastructure, skills, and technology diffusion.
2. Employment-linked incentives should complement export promotion to restore labour absorption.
3. Financial deepening must be prioritised by improving credit flow and raising credit–deposit ratios in backward regions.
4. Decentralised industrial clusters should be developed beyond coastal belts to reduce spatial agglomeration.
5. New development metrics should supplement export growth with indicators of employment generation, wage growth, and regional convergence.

Conclusion: India’s exports increasingly mirror accumulated industrial strength rather than enabling structural transformation. Treating export growth as a proxy for inclusive development risks confusing outcomes with instruments. A reoriented strategy that integrates trade, employment, financial inclusion, and state capacity is essential to ensure that exports contribute to equitable and sustainable growth.

Question: Despite strong aggregate export growth, why are India’s exports concentrated in a few States? Discuss the causes, implications, and policy measures.