India is missing a crucial opportunity to take advantage of the gap left by China’s withdrawal from labour-intensive manufacturing sectors such as textiles, apparel, leather, and footwear, according to a new report from the World Bank. As China pivots towards high-tech industries, robotics, and new energy, India has struggled to meet the global demand created by this transition.
The report points out that India’s share of global apparel exports has decreased from 4 per cent in 2018 to 3 per cent in 2022, mainly due to rising production costs and declining productivity. This downturn is particularly concerning in light of the overall decrease in India’s merchandise exports, which fell to $437.06 billion in the fiscal year ending March 2024, down from $451.07 billion in the previous year.
Auguste Tano Kouame, the World Bank’s India Country Director, has said that India could significantly enhance its economic growth by more effectively harnessing its global trade potential. While the country excels in IT, business services, and pharmaceuticals, there is substantial room to diversify its export portfolio, especially in textiles, apparel, footwear, electronics, and green technology sectors.
Meanwhile, Nora Dihel and Ran Li, senior economists and co-authors of the report, noted, “With rising production costs and declining productivity, India’s share in global apparel exports has dropped from 4 per cent in 2018 to 3 per cent in 2022… To create more trade-related jobs, India could integrate more deeply into global value chains, which would also foster innovation and productivity.”
Despite these challenges, the World Bank’s latest India Development Report remains optimistic about India’s economic outlook. The World Bank estimates that India’s growth will touch 7 per cent in FY25 and continue to remain robust in the following years.
The report also foresees a gradual reduction in the debt-to-GDP ratio, predicting a decline from 83.9 per cent in FY24 to 82 per cent by FY27, along with a stable current account deficit of around 1-1.6 per cent of GDP over the same period.