Can India Capitalize on Changing Supply Chains to Boost Exports?

New Delhi, May 22 (NationPress) An exciting opportunity for India to enhance its exports is arising as global supply chains undergo significant changes. Strategies aimed at increasing mid-tech labour-intensive exports can potentially strengthen the country’s trade connections, drive mass consumption, foster investment, and elevate GDP growth, as highlighted in an HSBC report released on Thursday.

The report emphasizes that while India is often viewed as a domestic demand-driven economy, its most rapid growth periods coincide with increased global integration.

Utilizing the rolling correlation between India and world GDP growth as a benchmark for global integration, the report reveals that the decade spanning 2000 to 2010 was characterized by decreasing import tariffs and heightened global integration, export share, and GDP growth. However, this trend shifted in the following decade, 2010-2020.

During this latter period, the report notes a rise in tariffs alongside a decline in global integration, export share, and GDP growth. Encouragingly, the years after the pandemic have demonstrated a resurgence in global integration, albeit primarily in financial terms rather than trade.

Analyzing various GDP sectors, the report finds that consumption is the most closely linked to world growth (95%), followed by investment (70%), with exports lagging at 35%. This discrepancy may stem from India's stronger global connections in finance—evidenced by the growing alignment of Indian equity markets with global equities over the past two decades—impacting consumption. Conversely, trade integration, which affects exports and investment, remains weaker.

Corporate investments are significantly more globally integrated, contrasting with lower integration levels for household investments, which encompass real estate and small business investments.

Within consumption patterns, discretionary spending is more globally interconnected compared to essential purchases, with strong financial integration likely benefiting high-end consumers who are better invested in financial markets, as per the report.

Weak integration in exports has been primarily attributed to sluggish mid-tech labour-intensive exports such as textiles and toys, which have struggled for the past decade.

According to the HSBC report, individuals who have reaped the rewards of financial integration have seen their incomes and discretionary consumption rise. Many of these individuals are affiliated with large firms, where global capital expenditure shows a strong correlation, or emerging sectors, such as the rapidly growing professional services exports.