Answer

India’s rise as the world’s fourth-largest economy, with a nominal GDP of around US $4 trillion in 2025, reflects its market size but not necessarily global influence. Despite this growth, its low per capita GDP, fragmented economy, and limited integration in global value chains (GVCs) constrain its global economic stature.

Structural Challenges Limiting India’s Economic Influence

• Low Per Capita Income: India ranks 136th in nominal GDP per capita and 119th in PPP terms, limiting its consumer market strength.
  Eg. Median incomes in rural India remain under US $3,000, restricting demand-driven influence.
• Poor Manufacturing Share: The industrial sector contributes less than 17.5% of GDP, below the 25–30% average of peers.
  Eg. India’s manufacturing accounts for only 1.8% of global merchandise exports.
• Fragmented Supply Chains: Lack of robust, export-focused Special Economic Zones (SEZs) in critical sectors weakens India’s role in GVCs.
  Eg. The Madras Export Processing Zone boosts output locally but lacks scalability.
• Weak MSME Integration: Most Micro, Small and Medium Enterprises (MSMEs) lack access to global markets and digital platforms.
  Eg. Less than 20% of global GVC trade involves Indian MSMEs.
• Low R&D Spending: India spends only 0.6 -0.7% of GDP on R&D, compared to world average 1.8%, China’s 2.4%, and USA’s 3.8%.
• Inadequate Infrastructure: Poor logistics and transport raise export inefficiencies and costs.
  Eg. In the World Bank’s Logistics Performance Index (LPI) 2023, India ranks 38th, reflecting significant scope for improvement in supply chain efficiency.
• Limited FDI in Manufacturing: India drew US $80 billion FDI in 2024–25, but still lags behind China.
  Eg. Only 15% of Apple’s production is in India, short of the company’s goal of 25 percent by 2024.
• Uneven Export Basket: Exports remain skewed toward low-value IT and services, with weak presence in high-tech sectors.
  Eg. Despite PLI incentives, India remains underrepresented in semiconductors and critical technologies.

Policy Measures to Boost Integration in Global Value Chains

• Expand PLI Schemes: Incentivize high-value sectors such as semiconductors, EVs, and green tech.
  Eg. The PLI schemes launched in 2020 for electronics and pharma have increased investment and output.
• Simplify Labor Laws: Implement uniform labor reforms to improve flexibility and compliance.
  Eg. 2024 labor code amendments eased regulatory burden for medium-sized factories.
• Develop SEZ and EPZ Infrastructure: Scale successful models like the Cochin SEZ across India.
  Eg. CSEZ in Kochi employs over 15,000 workers across 160 units.
• Link MSMEs to Global Firms: Encourage partnerships between Indian MSMEs and MNCs or regional lead firms.
  Eg. India is integrating MSMEs into ASEAN production networks to improve value chain exposure.
• Streamline Customs Clearance: Digitize customs processes to reduce export delays.
  Eg. The National Logistics Policy enabled digital customs, cutting clearance time by 30%.
• Boost Infrastructure Investment: Enhance physical and digital trade infrastructure to support exports.
  Eg. Gujarat’s GIFT City IFSC aims to become a global financial hub.
• Ease FDI and Tax Norms: Reduce investment caps and simplify tax systems for foreign investors.
  Eg. In 2025, the Union Budget proposed increasing the FDI limit from 74% to 100% for insurance companies investing their entire premium within India.
• Pursue Strategic Trade Agreements: Deepen FTAs to boost access to key markets and supply chains.
  Eg. The ASEAN-India Trade Review is expected to enhance manufacturing exports and backward linkages.

India’s emergence as a $4 trillion economy is significant but insufficient to bridge the gap with China ($19.5 trillion) and the USA ($30 trillion) without addressing structural issues. Focusing on innovation, skilled workforce, quality growth, and infrastructure is vital to achieving the vision of a Viksit Bharat by 2047.

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