Need To Recalibrate India’s Export Strategy

Recalibrating India’s Export Strategy: A Policy Imperative

India’s commitment to achieving USD 2 trillion in exports by 2030, while ambitious, risks faltering if it doesn’t recalibrate its export strategy to address structural deficiencies. The current export growth figures—5.19% for April–August 2025—mask deep vulnerabilities such as market overdependence, high logistics costs, and geopolitical shocks. To ensure long-term competitiveness in a volatile global economy, India must pivot towards diversification, sustainability, and institutional reform.

Institutional Landscape: Legal and Policy Framework

The recently approved Export Promotion Mission, with an allocation of ₹25,060 crore for FY 2025–26 to FY 2030–31, aims to consolidate fragmented schemes under an outcome-based framework. It rightly prioritizes MSMEs, labor-intensive industries, and first-time exporters. Meanwhile, trade facilitation efforts—including ICEGATE modernization and logistics upgrades under the National Logistics Policy—are geared toward reducing turnaround times and transaction costs. Initiatives like Districts as Export Hubs mark a welcome focus on local industries.

Despite these positive steps, institutional gaps persist. Logistics costs remain at ~7.97% of GDP, far above the global benchmark (6–7%), and the Remission of Duties and Taxes on Export Products (RoDTEP) scheme suffers from inadequate budget allocations. Moreover, dependency on traditional markets like the US and EU is holding back diversification, compromising resilience against geopolitical risks such as US tariff hikes and EU climate taxes under the Carbon Border Adjustment Mechanism (CBAM).

Underlying Challenges: Evidence of Structural Weakness

The headline figures—electronics exports surging by 32.47% (USD 38.58 billion in FY 2024–25) and services export growth at 8.65%—paint an optimistic picture. However, granular data suggests uneven progress. For instance, marine exports declined by 33% year-on-year in August, largely due to US tariffs, and only recovered due to diversification towards non-traditional markets like Vietnam and China. This highlights the reactive nature of India’s export strategy, which lacks foresight in adapting to external shocks.

The EU’s CBAM regulations underscore another concern. Industries such as aluminium, iron, and steel face significant penalties unless they adopt sustainable practices. A Boston Consulting Group (BCG) report estimates that compliance costs could strip Indian exporters of profitability in high-value sectors. Similarly, currency volatility—compounded by global tightening of monetary conditions—has eroded export margins despite RBI measures like extended credit periods.

More troubling is the stagnant performance of logistics infrastructure, which continues to drive up freight costs and reduce competitiveness vis-à-vis East Asian exporters like Vietnam. India’s logistics expenditure of ~7.97% of GDP exceeds Vietnam’s ~6%, reinforcing a structural disadvantage.

The Strongest Counter-Narrative: Export Resilience and Incremental Gains

The Union Minister of Commerce and Industry has argued that India’s export performance signals resilience and competitiveness, citing robust merchandise export growth (2.31%) and services export expansion (8.65%). Trade agreements such as CEPA with the UAE and ECTA with Australia have opened new corridors, while ongoing negotiations with the EU, UK, and GCC promise diversified trade relationships. Modern partnerships, unlike older FTAs, are expected to integrate technology and supply chains.

While these arguments hold merit, they fail to address the core structural deficiencies. Incremental growth in merchandise and services exports does not inherently guarantee diversification or competitive parity. The rising concentration of exports in electronics could become a liability under tightened global supply chains post-pandemic.

International Comparison: Lessons from Germany

Germany’s approach to export strategy offers critical lessons for India. Unlike India’s reactive diversification, Germany invests in long-term industrial competitiveness through sustained R&D subsidies (over 3.1% of GDP as of 2023), stringent environmental compliance frameworks, and global logistics corridors. German exports are anchored in Mittelstand firms—highly specialized SMEs backed by tailored credit guarantees. Where India’s MSME-focused initiatives remain underfunded, Germany’s export financing ecosystem drives their global integration effectively.

Notably, Germany’s logistics costs hover around 6% of GDP, aided by rail and inland waterways infrastructure. India’s parallel investments in port modernization and inland freight corridors fail to translate into proportional cost reductions—an area ripe for policy overhaul.

Where Does This Leave India?

India’s export strategy needs recalibration on multiple fronts: expanding trade to non-traditional regions like Africa and Latin America, reallocating budgets to RoDTEP for price competitiveness, and building sustainability frameworks to pre-empt environmental tariffs. The Export Promotion Mission must expedite outcomes beyond rhetoric, particularly in MSME credit access and tech adoption. The USD 2 trillion target by 2030 will remain aspirational unless institutional bottlenecks in logistics and market focus are addressed systematically.

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