Recasting India’s Export Competitiveness: A Structural Redress, Not a Cosmetic Fix

India’s sluggish export growth—amid the government’s ambitious claim of hitting a $2 trillion export target by 2030—stems less from global headwinds, and more from structural inefficiencies in domestic policy design. The recent Budget 2026 announcement of enhanced incentives for export hubs misses the deeper issue: India’s export ecosystem suffers from fragmented governance, suboptimal trade facilitation, and incoherent industrial policy. Without addressing the systemic lacunae, any carrots offered to exporters are bound to yield diminishing returns.

Institutional Landscape: Structural Flaws in the Governance Framework

India's export framework hinges on policies under the Foreign Trade Policy (FTP) and is backed by institutions like the Directorate General of Foreign Trade (DGFT). Budget 2026 allocated Rs. 5,000 crore to enhance trade infrastructure in special economic zones (SEZs), but the SEZ policy itself remains outdated. The Sunil Mehta Committee's 2025 report flagged regulatory bottlenecks in the SEZs, noting only 60% operational efficiency due to non-conformity with WTO norms and state-level legal inconsistencies.

The Export Promotion Councils (EPCs), created to foster sector-specific competitiveness, have largely failed to provide actionable market intelligence, with a CAG report (2024) highlighting under-utilization of allocated resources. Moreover, India’s logistics performance index (ranked 38th in the World Bank 2023 study) underscores a serious infrastructure gap, with inland freight costs exceeding global benchmarks by 30-40%. These disconnected threads are emblematic of India’s wider institutional malaise.

Argument: Why the Incentive-Led Model is Misguided

The government’s argument for export incentives assumes that fiscal carrots can offset the systemic inefficiencies plaguing exporters. For instance, under the Remission of Duties and Taxes on Export Products (RoDTEP) scheme, Rs. 40,000 crore was allocated for remission of embedded taxes in exports in FY2025-26. While this scheme provides minor relief, it fails to address the root issue of inefficient compliance regimes and India’s struggle to meet WTO subsidy norms. The challenge remains one of weak structural support rather than fleeting fiscal measures.

Adding evidence to this, the NSSO’s 2025 survey on micro-exporting units flagged bureaucratic hurdles as a major roadblock to scaling operations. Nearly 78% of surveyed units reported delays in acquiring export clearances, eroding time-sensitive global competitiveness. Further, India’s stance on free trade agreements (FTAs) has been lackluster, with the UK-India FTA negotiations stalled since February 2026 over unresolved rules-of-origin clauses.

Contrast these inefficiencies with Vietnam, whose Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) membership, coupled with streamlined trade facilitation processes, has positioned it as a rising export giant. Vietnam’s exports grew nearly 12% year-on-year in 2025, while India’s bounced by a mere 3%. What Vietnam achieves through integrated governance structures and robust legal frameworks, India tries to buy with fiscal sops—an unsustainable strategy.

Critique: Failure of Policy Coordination and Accountability

A critical institutional flaw lies in the fragmented nature of India’s export governance. While the DGFT formulates FTP policies, state government agencies and customs authorities operate as siloed entities with conflicting priorities. The 2024 NITI Aayog study revealed that only 7 Indian states actively integrate state-level industrial policies with national FTP goals. Exporters located in states without coherent alignment fail to benefit from policy synergies, and this geographic inequity deepens economic asymmetry.

The judiciary, too, has flagged gaps in trade facilitation. The Supreme Court’s judgment in ‘Export Promotion vs Union of India, March 2023’, struck down inconsistent interpretations of export incentives under GST refund mechanisms. However, the absence of timely legislative clarity post-verdict further muddles exporters’ operational predictability. This judicial activism represents a stopgap solution to policy inertia, but it cannot be the cornerstone of systemic reform.

Counter-Narrative: Are Global Headwinds the Main Culprit?

The strongest argument opposing India’s lackluster export performance points to external factors: weakening global demand, geopolitical shifts, and supply chain constraints. The slowdown in global merchandise trade volumes to 4.6% in 2025 (as per WTO data) creates unfavorable conditions for emerging economies like India to sustain export momentum. Moreover, the Russia-Ukraine conflict has distorted global commodity prices, creating instability in India’s critical export sectors like engineering goods and textiles.

While these factors are indisputable, they are insufficient to explain India’s export underperformance relative to peers. Vietnam, Indonesia, and Bangladesh, operating under similar external constraints, have leveraged efficient domestic policies to offset global volatility. India’s problem lies not in external forces beyond its control, but in overreliance on short-term interventions rather than structural fixes.

International Perspective: Vietnam’s Policy Innovation

Vietnam presents a sharp contrast to India’s policy approach. Its ‘National Export Strategy 2025’ integrates tax incentives with robust logistics infrastructure, including transparent customs procedures and reduced non-tariff barriers. Vietnam’s export processing zones maintain WTO-compliance while leveraging trade agreements—like CPTPP and EVFTA—to expand market access. Where India’s SEZs struggle with outdated legal frameworks, Vietnam’s export zones contribute nearly 40% of its annual trade revenue. India must recalibrate its focus from fiscal incentives to legal and infrastructural revamps that empower exporters to compete globally.

Assessment: Reform Directions for Export Competitiveness

India’s export competitiveness needs a structural shift. Policymakers must prioritize regulatory efficiency, coherence between state and national policies, and infrastructural modernization over reliance on fiscal sops. Unifying state-level industrial priorities with FTP objectives through central guidelines, coupled with EPC accountability reforms, would create a consolidated governance ecosystem. Additionally, greater engagement in FTAs—especially with the EU and ASEAN—must complement domestic reforms.

Realistically, short-term steps like RoDTEP must continue to cushion exporters, but they can only be interim solutions. Long-term competitiveness demands addressing institutional failures and strategic engagement with global markets via sustainable policy designs.

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