India’s recent depreciation of the rupee has yet to trigger a strong rise in exports as the mid-technology and intermediate goods segment, termed the ‘missing middle’, has shown a weak response, according to a report released on Friday.
The analysis by HSBC Global Investment Research highlighted that this weakness in mid-tech exports leaves India’s trade balance vulnerable and limits how much a weaker rupee can benefit export growth.
HSBC noted that India faces higher tariffs compared to peer countries, especially on mid-tech exports. Additionally, elevated import duties have led to an inverted domestic duty structure for several intermediate goods, which discourages manufacturing activity.
The report found that while high-tech exports like machinery and electronics positively responded to the rupee’s decline, low-tech goods showed moderate improvement. In contrast, mid-tech categories such as textiles, footwear, and plastics exhibited only negligible growth.
The study also pointed out that although India is increasing exports of finished products, these often rely heavily on imported components, as illustrated by the mobile phone industry.
HSBC suggested that swift execution of recent trade agreements, including the EU-India trade deal and the UK-India CEPA, along with expanding such deals to other regions, could help reduce import and export tariffs effectively.
Historically, India has grown faster than its export markets, resulting in a chronic trade deficit that poses risks during periods of insufficient foreign inflows. Enhancing export competitiveness, partly through a weaker currency, could help address this issue.
The report also noted the rupee had depreciated significantly over the past 18 months, which should theoretically improve the trade balance through the “J curve” effect.
Nonetheless, export volumes have not increased enough to reduce the trade deficit, likely due to the continued weakness in mid-tech exports.
(IANS)