Lower Tariffs Could Boost India’s Missing Middle in Export Growth: Report

According to a report released on Friday, India’s recent currency depreciation has failed to significantly boost exports, as the mid-technology and intermediate goods sector—commonly referred to as the ‘missing middle’—remained largely unresponsive.

Key Takeaways

• HSBC Global Investment Research says India’s currency depreciation has failed to significantly boost mid-tech ‘missing middle’ exports.
• High-tech exports like machinery and electronics responded positively to rupee weakness, but mid-tech categories saw negligible growth.
• India faces higher tariff barriers than peers in mid-tech sectors, with an inverted duty structure discouraging local manufacturing.
• The sluggish mid-tech performance leaves India’s trade balance vulnerable and limits the benefits of a weaker rupee.

An analysis by HSBC Global Investment Research emphasizes that the sluggish performance in mid-tech exports renders India’s trade balance highly vulnerable, restricting the potential benefits of a weaker rupee for export expansion.

HSBC pointed out that India encounters higher tariff barriers than its peers, particularly in mid-tech sectors. Furthermore, high import duties have created an inverted duty structure for various intermediate goods, which ultimately discourages local manufacturing.

The report reveals that while high-tech exports, such as machinery and electronics, saw a positive response to the rupee’s devaluation, low-tech goods experienced moderate gains. Conversely, mid-tech categories—including textiles, footwear, and plastics—showed negligible growth.

The study also highlights that despite a rise in finished product exports, these goods heavily depend on imported components, a trend clearly exemplified by the mobile phone industry.

To effectively lower import and export tariffs, HSBC recommends the prompt implementation of recent trade agreements, such as the EU-India trade deal and the UK-India CEPA, alongside expanding these agreements to other regions.

Historically, India’s growth rate has outpaced that of its export markets, leading to a persistent trade deficit that poses risks during times of limited foreign capital inflows. Boosting export competitiveness—partially achieved through currency depreciation—could help mitigate this challenge.

The report notes that over the past 18 months, the rupee has undergone substantial depreciation, which theoretically should improve the trade balance via the ‘J-curve’ effect.

However, export volumes have yet to rise sufficiently to narrow the trade deficit, likely due to persistent weakness in mid-tech export categories.

(IANS)