India’s Export Concentration Across States – Explained

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• Recent analysis of RBI State-wise export data shows that India’s export growth is increasingly concentrated in a few States, exposing structural imbalances in regional development.

Overview of India’s Export Performance

• India’s export numbers appear robust at the national level, even amid a weakening rupee. 
• However, a disaggregated view reveals that export growth is not evenly distributed across States. 
• According to the RBI Handbook of Statistics on Indian States (2024-25), a small group of States accounts for a disproportionately large share of India’s total exports. 
• This pattern challenges the long-held assumption that export expansion naturally leads to broad-based industrialisation and employment growth across regions.

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Concentration of Exports Among a Few States

• India’s export geography is increasingly dominated by five States, Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh, which together contribute nearly 70% of the national export basket. 
• Half a decade ago, their share was around 65%, indicating a steady rise in concentration.
• This trend reflects a core-periphery pattern, where coastal and industrially advanced States integrate more deeply into global supply chains, while large parts of northern and eastern India remain marginalised. 
• The rising Herfindahl-Hirschman Index (HHI) of export concentration signals growing regional imbalance rather than convergence.
  • The HHI is used by anti-trust agencies that possess the mandate to promote competition. It is calculated by squaring the market share of each producer in the market and then comparing the sum to a scale.

Structural Reasons Behind Regional Divergence

• Several structural factors explain why exports are clustering instead of dispersing:
  • First, global trade conditions have changed. The era of labour-intensive, low-skill manufacturing as a pathway to development is narrowing. 
  • Global merchandise trade growth has slowed, and capital now seeks regions with high economic complexity rather than just cheap labour.
  • Second, export-leading States possess dense industrial ecosystems, logistics, skilled labour, supplier networks, and financial depth that reinforce agglomeration. 
  • Firms benefit from spatial clustering, making it costly to relocate to less-developed regions.
  • Third, hinterland States suffer from persistent deficits in infrastructure, human capital, and institutional capacity, preventing them from entering complex global value chains.

Shift from Labour-Intensive to Capital-Intensive Exports

• A key insight from the analysis is that India’s export growth is increasingly capital-intensive rather than labour-absorbing. 
• Data from the Annual Survey of Industries (2022-23) shows that while fixed capital investment grew by over 10%, employment growth lagged behind at about 7%.
• Fixed capital per worker has risen sharply, indicating capital deepening. As a result, exports generate value without proportionate job creation. 
• This breaks the traditional development link where exports absorb surplus labour from agriculture into manufacturing.

Employment Outcomes and Labour Market Trends

• The Periodic Labour Force Survey (PLFS) reinforces this concern. Manufacturing’s share in total employment has stagnated around 11.6-12%, despite record export values. 
• This suggests a collapse in the employment elasticity of exports.
• Most new export-linked jobs are concentrated in capital-intensive hubs, such as electronics clusters in Tamil Nadu or Noida, rather than dispersed factory employment across the hinterland. 
• Wage share in Net Value Added has also declined, indicating that productivity gains accrue more to capital than to workers.

Financial and Institutional Constraints in Hinterland States

• Regional inequality is further deepened by financial asymmetries. Credit-Deposit (CD) ratios in export-leading States often exceed 90%, ensuring local recycling of savings into industry. 
• In contrast, States like Bihar and eastern Uttar Pradesh have CD ratios below 50%, implying capital outflow to already developed regions.
• This creates a vicious cycle: weaker States lose capital, struggle to build industrial capacity, and remain excluded from export growth.

Rethinking Exports as a Development Metric

• The evidence suggests a structural shift; exports are no longer a driver of development but an outcome of prior development. 
• States do not export their way into prosperity; they export because they already possess industrial and institutional strength.
• This raises important policy questions. Treating export growth as a proxy for inclusive development risks overlooking employment generation, regional equity, and human capital outcomes.

Source: TH