Why Indian exports will grow in 2025 and beyond, Trumping challenges with inherent strengths

As 2025 begins, global trade faces mounting challenges. After decades of rapid expansion, the growth of international commerce has slowed dramatically. Between 2003 and 2008, total global trade in goods and services doubled from $10 trillion to $20 trillion, but reaching $30 trillion has taken more than 13 years, with little significant movement since. The world export-to-GDP ratio, which first hit 30% in 2008, hovered below that level for much of the following years, briefly touching it again in 2022 before slipping once more—signalling a long-term plateau. 

Fig: Exports (goods+services) to GDP ratio, %. Data: Worldbank

Meanwhile, U.S. President-elect Donald Trump is preparing tariffs against nations he claims misuse subsidies and high tariffs—China is the prime target, with allies like Canada and Mexico also on notice. His branding of India as a "tariff king" raises the spectre of potential actions against Indian trade. Against this backdrop, India must navigate a world where globalization is no longer the unstoppable force it once was. 

The growth journeys of exporting countries like Germany, Japan, South Korea, and China offer valuable lessons but also highlight the unique challenges of our time. Each of these nations embraced an export-led growth strategy, leveraging global markets while protecting and nurturing their domestic industries. Drawing on principles akin to Hamiltonian economics, they used tools like tariffs, subsidies, and state-backed industrial policies to build competitive local sectors. Germany’s post-WWII recovery was anchored in manufacturing revival and export-oriented Mittelstand firms, supported by targeted tariffs. Japan and South Korea relied on industrial policies to nurture keiretsu and chaebols, shielding them with trade protections until they could compete globally. China’s rise as the world’s factory was underpinned by export-led growth, combined with large subsidies, strategic tariffs, and a managed currency. However, today’s trade environment is different. Alongside stricter WTO rules, increasing non-tariff barriers and waning globalization, there is a growing resistance to the offshoring of jobs. For India, the challenge is to build an economic model that balances global integration with domestic priorities in an increasingly protectionist world. 

 

Fig: From CSIS Red Ink report, 2022

The challenge for India is particularly nuanced, as it cannot afford the kind of massive subsidies that a comparable economy like China provides to its industries. According to the CSIS Red Ink report of 2022, China allocated an estimated $248 billion—roughly 1.73% of its GDP—to industrial subsidies in 2019. Such expenditure is well beyond India’s fiscal capacity. 

Fig: From CSIS Red Ink report, 2022

This reality narrows India’s options to state-led agencies, tariff and non-tariff measures, and targeted incentives for identified sectors. However, these tools alone are insufficient in today’s complex global trade environment—and some could even prove counterproductive. In recent years, India has effectively used trade policy and tariff measures to attract segments of the global value chain for electronics, especially smartphones, and is now attempting the same in other strategic sectors. Moving forward, India must adopt similar but more strategic approach, leveraging its inherent strengths — such as its demographic dividend, technological capabilities, and entrepreneurial spirit—to build and enhance its export ecosystem. In the sections below, we explore the unique strengths that India can harness to drive its growth in a way that aligns with its context. 

Fig: Leading global risks, Source: EIU

India possesses key advantages that position it favorably for future economic growth and export performance. First, the Indian economy has reached a technological and economic complexity comparable to many advanced nations. India has demonstrated significant progress in export diversification and technological sophistication, ranking 40th out of 133 countries in the 2022 Economic Complexity Index, and 22nd out of 96 in the technology index. Economic complexity models suggest that, over time, nations tend to converge toward an income level that reflects their economic complexity. 

Source: oec.world, (disclaimer: map not to scale and geographically inaccurate) 

While such models provide encouraging predictions of rapid growth for India, they are only part of the story. The country’s increasing foothold in high-value export sectors like smartphones, chemicals, pharmaceuticals, and engineering goods - combined with initiatives like the $3 billion incentive package for electronics R&D - demonstrates a possible strategy to transform this potential into export performance in technology sector. The accompanying chart illustrates high-tech exports as a percentage of manufacturing exports for India, China, and the USA. India's share of high-tech exports has shown notable progress in recent years. However, accelerating this growth is essential not only to increase the percentage share but to scale up in absolute value terms, bridging the gap with leading economies.

Source: WorldBank

Second, India’s position as the world’s most populous nation, with a young and dynamic demographic profile, offers a powerful advantage. As prosperity improves, India’s vast consumer base is poised to attract firms eager to capitalize on agglomeration effects and its expansive domestic market. In a world increasingly shaped by rising tariff barriers, geopolitical tensions, and resistance to cross-border trade, global supply chains are likely to fragment and relocate closer to key consumption hubs. Much like Netflix optimizes content delivery by positioning servers near its users, global supply chains could reconfigure to place production near large, growing markets. Among regional players, India stands out as the only country with the scale to rival China in the coming years. With a healthier consumption pattern, abundant cheap labor stemming from regional income disparities, and the potential to offer competitive production costs, India is uniquely positioned to attract capital and investment. By implementing the right industrial policy interventions to help set up new industries and the formation of sectoral clusters, India can solidify its role in recalibrated global value chains. In a way, this is being attempted through efforts such as the Production linked incentive scheme and various industrial park policies. Firms make goods for people who can buy. We have people. Some can buy things, and most are in the process of getting rich enough to buy things. Once the direction is clear, there's no looking around for firms about where to invest for the future. 

 

Third, India’s services sector continues to strengthen its global position, recently surpassing merchandise exports as the leading contributor to the country’s export basket, with $35.67 billion in services exports compared to $32.11 billion in merchandise exports in November 2024. This milestone underscores India’s dominance in IT services, the proliferation of Global Capability Centers (GCCs), and its advancements in financial technology. Platforms like the Unified Payments Interface (UPI), receivable discounting systems such as TReDS, and the rise of the Account Aggregator framework to pool financial data to derive financial insights about a firm highlight India’s capacity for innovation and scalability in technology-driven sectors. The next frontier lies in international trade finance, where digital negotiable instruments (DNIs) and cross-border paperless documents such as electronic Bills of Lading (e-BL) are set to dominate. By 2030, nine of the world’s ten largest ocean freight carriers have committed to adopting electronic documentation. The Indian IT sector is well-positioned to lead this paperless revolution, provided India actively participates in international forums like the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific (CPTA). With its proven ability to create robust digital stacks, India can emerge as the backbone for future international transactions, receivable financing, and cross-border payment settlements. 

 

Fourth, the rise of cross-border e-commerce as a viable business model, exemplified by Chinese firms like Temu and Shein, holds immense potential for rural India, small businesses, and individual entrepreneurs. Digital platforms enable even the smallest players to access global markets, bypassing traditional trade barriers. To illustrate its scale, the U.S. imported over 1 billion packages valued under $800 via de minimis clearance without duties. In India, the bottom 1.5 lakh exporters currently contribute only 3% to the country’s total exports, while the top 30,000 account for 97%. Similarly, over 80% of India’s exports come from just 62 districts, while the bottom 450 districts contribute less than 1% cumulatively. 

Fig: cumulative exports vs number of districts - source DGCIS

E-commerce offers a pathway for these smaller exporters and underrepresented regions to scale up and compete globally. This model is particularly advantageous for sectors with limited global trade shares, such as handicrafts, leather goods, processed Indian foods, and toys. The Indian government has prioritized e-commerce exports by digitizing customs and banking processes, streamlining logistics, and enabling MSMEs to connect with international customers. Initiatives like transforming districts into export hubs and creating dedicated e-commerce zones ensure local industries can access global demand—even if markets like the U.S. tighten de minimis rules. With the right measures, cross-border e-commerce can empower artisans, entrepreneurs, and small businesses, driving inclusive growth, creating jobs, and strengthening India’s export resilience.

India’s advantages will translate into sustained economic growth and export performance when its trade route passes through the diverse strengths outlined above—technological progress, demographic dividend, a robust services sector, and the agglomeration effects of industrial clusters. By drawing on the experiences of successful export-led economies and adapting these lessons to its unique context, India can skilfully navigate the evolving complexities of modern global trade.