India losing to smaller rivals like Bangladesh and Vietnam in manufacturing, World Bank says

By Ruchi Bhatia

India’s global trade share hasn’t kept pace with its fast growing economy, and the country is losing out to rivals like Bangladesh and Vietnam as low-cost manufacturing export hubs, the World Bank said.

India’s trade in goods and services has been declining as a percentage of gross domestic product over the past decade despite its economic heft, the multilateral lender said in a report on Tuesday.

The country’s share in global exports of apparel, leather, textiles, and footwear grew from 0.9 per cent in 2002 to a peak of 4.5 per cent in 2013, but has since declined to 3.5 per cent in 2022, according to the World Bank. In contrast, Bangladesh’s share in global exports of these goods reached 5.1 per cent, while Vietnam’s stood at 5.9 per cent in 2022.

To boost exports and benefit from China’s shift away from labour-intensive manufacturing, India will need to lower trade costs, reduce tariff and non-tariff barriers and revise trade pacts, the lender said.

“This is an area where India could focus on,” Nora Dihel, a senior economist at the World Bank, told reporters in New Delhi. “This is a call to action.”

Prime Minister Narendra Modi’s ambition is to make India a manufacturing hub as businesses diversify their supply chains from China. Modi’s government has spent billions of dollars in subsidies to attract investment in industries such as electronics and chip-making.

India’s export sectors are increasingly capital intensive, though, and unable to absorb the millions of jobless people in the country. The World Bank estimated that direct employment related to exports fell from a peak of 9.5 per cent of total domestic employment in 2012 to 6.5 per cent in 2020.

The World Bank expects India’s economy to continue growing at a rapid pace of 7 per cent in the current fiscal year through March 2025 after expanding more than 8 per cent in the past year. Growth will probably average 6.7 per cent in 2025-26 and 2026-27, the lender said.