World Bank Calls for India's Trade Diversification to Achieve $1 Trillion Export Goal

According to the IDU, India maintained its status as the fastest-growing major economy, recording a remarkable 8.2 percent growth rate in FY23/24.

The Indian economy continues to grow steadily, despite global challenges, as highlighted in the latest India Development Update (IDU) from the World Bank titled India's Trade Opportunities in a Changing Global Context. The report emphasizes that while India is on track to sustain its rapid economic growth, it must diversify its export basket and strengthen global value chain integration to reach its ambitious target of $1 trillion in merchandise exports by 2030.

According to the IDU, India maintained its status as the fastest-growing major economy, recording a remarkable 8.2 percent growth rate in FY23/24. This growth was driven by significant public infrastructure investments and increased household investments in real estate. On the supply side, the manufacturing sector experienced robust growth of 9.9 percent, complemented by resilient service activities, which helped offset the agricultural sector's underperformance. Urban unemployment rates have gradually improved since the pandemic, particularly for women, with female urban unemployment dropping to 8.5 percent in early FY24/25. However, urban youth unemployment remains high at 17 percent.

India's economic momentum is further supported by a narrowing current account deficit and strong foreign portfolio investment inflows, pushing foreign exchange reserves to an all-time high of $670.1 billion in early August—equivalent to over 11 months of import cover in FY23/24 terms.

Despite the challenging global environment, the World Bank projects India's medium-term economic outlook to remain positive. Growth is forecasted at 7 percent in FY24/25, with continued strength expected in FY25/26 and FY26/27. Additionally, with robust revenue growth and ongoing fiscal consolidation, India's debt-to-GDP ratio is anticipated to decrease from 83.9 percent in FY23/24 to 82 percent by FY26/27. The current account deficit is expected to remain stable, ranging between 1 to 1.6 percent of GDP during this period.

The report underscores the critical role of trade in bolstering India's economic growth. In the face of increased global protectionism and post-pandemic shifts in global value chains, India has seized opportunities to enhance its competitiveness through initiatives like the National Logistics Policy and digital reforms that reduce trade costs. However, the report also cautions that rising tariff and non-tariff barriers could hinder trade-focused investments.

"India's strong growth prospects, coupled with declining inflation, will help to alleviate extreme poverty," said Auguste Tano Kouame, the World Bank's Country Director in India. "To accelerate growth further, India should fully leverage its global trade potential. Beyond its strengths in IT, business services, and pharmaceuticals, India can diversify its export portfolio by increasing exports in textiles, apparel, footwear, electronics, and green technology products."

The IDU outlines a three-pronged strategy for achieving the $1 trillion merchandise export target, emphasizing the need to reduce trade costs, lower trade barriers, and deepen trade integration.

"India's share in global apparel exports has declined from 4 percent in 2018 to 3 percent in 2022 due to rising production costs and decreasing productivity," noted Nora Dihel and Ran Li, Senior Economists and co-authors of the report. "By integrating more deeply into global value chains, India can create more trade-related jobs and unlock opportunities for innovation and productivity growth."

This strategic focus on trade diversification and integration is vital for India to sustain its economic momentum and realize its export ambitions by 2030.