Introduction

India’s export-led growth strategy historically rested on the assumption that expanding external demand would absorb surplus labour and facilitate broad-based industrialisation. However, disaggregated State-level data reveals a core-periphery structure in India’s export geography. Export growth is now driven by pre-existing industrial hubs, while large hinterland regions remain marginal to global value chains. This shift reflects deeper structural constraints related to capital intensity, industrial complexity, and financial asymmetries.

Why in the News?

Recent analysis based on the RBI Handbook of Statistics on Indian States (2023-24) highlights that India’s export growth is increasingly concentrated in a shrinking cluster of States, even as aggregate export numbers remain strong. The top five exporting States, Maharashtra, Gujarat, Tamil Nadu, Karnataka and Uttar Pradesh, now account for around 70% of India’s total exports, up from about 65% half a decade ago.

Export Geography and the Emerging Core-Periphery Pattern

Spatial Concentration of Export Activity

1. Export concentration: Top five States command ~70% of national exports.
2. Rising market concentration: Herfindahl-Hirschman Index (HHI) indicates increasing spatial concentration of exports.
3. Deceptive aggregation: National export growth masks declining participation of non-core States.

Regional Divergence

1. Coastal advantage: Western and southern coastal States integrate more easily into global supply chains.
2. Hinterland exclusion: Northern and eastern States with large labour pools remain weakly connected to export networks.
3. Sticky geography: Export growth reinforces existing industrial locations rather than spreading spatially.

From Labour Absorption to Capital Deepening

Shift in Factor Intensity

1. Capital deepening: Rising capital-to-labour ratios across export sectors.
2. Weak employment response: Employment elasticity of export growth has declined sharply.
3. Manufacturing stagnation: Manufacturing employment share remains around 11.6-12%, despite export expansion.

Structural Evidence

1. Wage compression: Net Value Added (NVA) data shows productivity gains accrue disproportionately to capital.
2. Limited job creation: New export jobs emerge mainly in capital-intensive hubs rather than labour-surplus regions.

Changing Nature of India’s Exports

Transition from Volume to Value

1. Global slowdown: WTO data indicates deceleration in merchandise trade growth.
2. India’s ranking: India among top 10 global exporters, accounting for ~5% of global trade.
3. Higher complexity: Export baskets increasingly shift towards complex, technology-intensive goods.

Implications for Labour

1. Barrier to entry: Complex value chains require skilled labour, logistics depth, and supplier ecosystems.
2. Limited diffusion: Such ecosystems rarely emerge organically in lagging regions.
3. Bypassing labour-intensive phase: India risks skipping the East Asian pathway of mass industrial employment.

Capital over Worker: Evidence from Employment Data

PLFS-Based Insights

1. Household-led employment: Export boom does not translate into factory-floor job growth.
2. Factory output without labour expansion: Capital-intensive plants dominate export hubs.
3. Regional imbalance: Hinterland labour remains disconnected from export-driven growth.

Urban Concentration

1. Electronics exports: ~47% year-on-year growth remains concentrated in Chennai, Kancheepuram, Noida.
2. Supply-chain rigidity: High technological complexity prevents geographic diffusion.

Financial Architecture and Regional Inequality

Credit-Deposit Ratio Divergence

1. Export hubs: Tamil Nadu and Andhra Pradesh record CD ratios above 90%.
2. Hinterland States: Bihar and eastern Uttar Pradesh show CD ratios below 50%.
3. Capital recycling: Savings from labour-surplus regions finance industrial growth elsewhere.

Institutional Weakness

1. Financial thinness: Hinterland lacks credit absorption capacity.
2. State capacity gap: Weak industrial policy execution limits integration into global value chains.

Rethinking Export-Led Growth as a Development Strategy

Limits of Export Optimism

1. Exports as outcome, not lever: Export success reflects prior industrial capacity.
2. Employment decoupling: Export growth no longer guarantees labour absorption.
3. Misleading metric: Export growth alone insufficient as a proxy for inclusive prosperity.

Policy Implication

1. Industrial policy recalibration: Labour-intensive manufacturing requires deliberate state intervention.
2. Metric correction: Development assessment must incorporate employment and regional equity indicators.

Conclusion

India’s export performance reflects a narrow, capital-intensive growth model concentrated in a few industrial hubs, limiting its capacity to generate employment and reduce regional disparities. Without recalibrating industrial and trade policies towards labour-intensive manufacturing and wider spatial diffusion, export-led growth risks reinforcing jobless growth rather than serving as an engine of inclusive development.

PYQ Relevance

[UPSC 2017] Account for the failure of the manufacturing sector in achieving the goal of labor-intensive exports. Suggest measures for more labor-intensive rather than capital-intensive exports.

Linkage: It is relevant to GS-III as the article shows India’s export growth has become capital-intensive with weak employment generation. Rising capital-labour ratios and export concentration explain the failure of labour-intensive exports and the need for policy correction.

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