In the Race for Exports, India’s Competitive Edge Missing

PWOnlyIAS

May 31, 2025

In the Race for Exports, India’s Competitive Edge Missing

Amid rising global trade protectionism and US-China tensions, India faces both risks and opportunities. 

Evolving Global Trade Dynamics

  • US Protectionism : The US administration under Donald Trump has returned to a protectionist trade stance, reviving uncertainties in global tariff policies.
  • Targeting China : The current policies are particularly aimed at China, building on the US-China trade tensions from Trump’s first term.

Impact of Changing Trade Dynamics on India

  • Export Surge: With China’s exports facing US barriers, there is a risk of surplus goods flooding other markets, including India.
  • Risk of Dumping: Chinese exporters may resort to aggressive pricing and dumping, directly threatening Indian firms in their home market.
  • Missed Opportunity: India gained little from the 2018 US-China trade war, failing to attract major trade or manufacturing shifts.
  • Strategic Gains: Now, India has a renewed opportunity to benefit—if it can improve competitiveness and reform outdated frameworks.

Challenges Associated with India

  • Low Ranking: A recent Competitiveness Index places India at the bottom among five key Asian economies, raising alarm.
  • Regional Rivals: Malaysia, Vietnam, and Thailand lead the rankings with strong trade fundamentals and economic efficiency.
  • Poor Performance: The index tracks six core pillars, and India underperforms in most, indicating a lack of readiness for global trade shifts.
  • Need for Deep Structural Reforms: This lag signals the urgency of addressing policy, regulatory, and economic inefficiencies to compete globally.
  • Low Labour Productivity: India has seen the highest workforce growth among its peers, offering a potential labour cost advantage.
    • Despite this, productivity levels are the lowest, reducing the overall effectiveness of the growing workforce.
  • R&D Deficit: Indian firms rarely invest in R&D or launch new products, limiting their ability to compete in innovation-led markets. 
    • Malaysia and Thailand excel in R&D and innovation, improving productivity and export competitiveness.
  • Lack of Financial Access: Many Indian firms lack access to finance, facing frequent credit rejections that hinder growth and competitiveness.
  • Land Scarcity: Land availability is restricted by complex regulations and building norms, raising input costs and limiting usable land.
  • Lack of Exporting potential: India scores well on domestic demand, thanks to its large internal market, enabling firms to scale operations.
    • This large market also reduces export incentives, with Indian firms showing the lowest foreign demand among peers.
  • Oligopolies: India has high firm concentration, where a few firms dominate key sectors, limiting healthy competition.
  • Raw Material Monopoly: Monopolies in raw materials raise input prices, impacting downstream sectors’ global competitiveness.
  • Complex Regulations: India ranks low on regulatory quality, facing issues like corruption, tax complexity, and judicial delays
    • These regulatory hurdles disproportionately affect SMEs, stifling their growth and innovation potential.
  • Protectionist Approach: India’s high import tariffs and absence from key trade blocs restrict participation in global value chains
    • In contrast, Vietnam enjoys cheap inputs and preferential market access via broad trade agreement participation.
  • Sectoral Gaps: Indian firms admit to low R&D investment and a heavy dependence on domestic markets for revenues. India’s cotton-focused apparel industry fails to keep pace with rising global demand for synthetic garments.
  • Rigid labour laws: It deter firm expansion, encouraging businesses to remain small to avoid compliance burdens.
  • Missing Middle  Problem: This has led to a persistent “missing middle”, where too few mid-sized firms bridge the gap between MSMEs and large corporations.
  • Structural Issues: India’s bottom ranking on the Competitiveness Index signals long-standing systemic challenges, not just cyclical problems.

Conclusion

India must adopt a forward-looking competitiveness strategy  focused on productivity, innovation, and trade integration.

Main Practice

Q. India’s domestic market scale is both an asset and a limitation for export-led growth. Discuss in the context of India’s position at the bottom of the Global Competitiveness Index rankings. (15 Marks, 250 Words)

To get PDF version, Please click on "Print PDF" button.

/*
*/

Need help preparing for UPSC or State PSCs?

Connect with our experts to get free counselling & start preparing

Aiming for UPSC?

Download Our App

      
Quick Revise Now !
AVAILABLE FOR DOWNLOAD SOON
UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
Integration of PYQ within the booklet
Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध
Quick Revise Now !
UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
Integration of PYQ within the booklet
Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध

<div class="new-fform">






    </div>

    Subscribe our Newsletter
    Sign up now for our exclusive newsletter and be the first to know about our latest Initiatives, Quality Content, and much more.
    *Promise! We won't spam you.
    Yes! I want to Subscribe.