A window of opportunity: Trade as catalyst for India’s development

Vikhsit Bharat: This is the ambitious goal India has set itself of becoming a high-income country by 2047. But reaching this goal will require India to grow almost 8 percent on average for the next 22 years. That would mean an acceleration from the 6.6 percent growth per year that India achieved over the last 25 years, and that we expect for the next couple of years.

What can fuel this growth acceleration that India needs? These issues were discussed at the recent George Washington University India conference. In this blog, we summarize the arguments we made on that occasion.

Times of change are windows of opportunity. In the current global environment, widely accepted beliefs are being questioned, strategic interests are reshaping economic relationships and global supply chains and trade networks are being reconfigured.

Amid these global convulsions, opening to international trade can become the catalyst that India needs to achieve its development goal.

Since 1991, 29 countries have achieved India’s ambition: a jump to high-income status from either low- or middle-income status. Of the 17 of these countries for which data is available, almost all were very open to begin with—with an average trade to GDP ratio of 85 percent compared with 62 percent in those that did not rise to high-income status. Or they opened their doors wide to trade, increasing their trade openness by 38 percentage points of GDP, on average.

This is the case that the World Bank has made in two World Development Reports: the 2020 edition and the 2024 edition. And for India, specifically, in the October 2024 India Development Update.

And India’s starting point is favorable for several reasons, especially in the current global economic environment.

• Large share of services exports. India relies on services exports, especially business services, which have not been subject to the recent tariff tensions. While the average emerging market and developing economy’s (EMDE) exports consist of about 80 percent goods, or even 90 percent goods in the case of China and Brazil, India’s exports consist of more than 40 percent services. In fact, India’s single largest export industry is the business services industry.
• Diversified goods exports. India’s goods exports are highly diversified across destinations as well as sectors. More than half of India’s goods exports are shipped to other EMDEs such as the United Arab Emirates, Saudi Arabia, and Türkiye. India’s top four export sectors—refined oil, pharmaceuticals, metals, and textiles—account for only 30 percent of goods exports. As the World Bank showed in its October 2024 South Asia Development Update, India’s export diversification also makes the country more resilient against geopolitical shocks.

However, while India confronts the changing global landscape from a favorable starting point, the opportunities this represents so far remain underutilized. At least three-quarters of EMDEs currently have higher export-to-GDP ratios than India (as shown in the October 2024 South Asia Development Update). Export weakness spills over into FDI weakness since FDI often enters host countries for the purpose of trading.

Many factors contribute to India’s below-average export-to-GDP ratios, including more restrictive policies than in other EMDEs (figures 1 and 2, World Bank 2025). 

CAN = Canada; FTAs = Free Trade Agreements; NZL = New Zealand. Shares of free trade agreements in global GDP are based on U.S. dollar GDP in current prices. Due to large heterogeneity in depth of preferential trade agreements, numbers exclusively report free trade agreements. Current FTAs for India are with ASEAN, Australia, Bangladesh, Bhutan, Japan, Nepal, Pakistan, Maldives, Singapore, Sri Lanka, and United Arab Emirates. “Under negotiation” refers to ongoing, formal negotiations or recently agreed but not yet ratified.

The remedy is straightforward: lower import tariffs and ease restrictions on FDI. Such measures are often implemented in the context of free trade agreements. India currently has a few bilateral agreements. These are mostly with small partner countries, that currently only account for 16 percent of global GDP (figure 3). That is much less than China has—30 percent of global GDP—or Brazil will have (22 percent of global GDP). 

Figure 3. GDP of partner countries in trade agreements

Sources: Deep Trade Agreements Database – Horizontal Content v2 (Hofmann, Osnago, and Ruta 2017); World Development Indicators (database); World Bank.

Note: CAN = Canada; FTAs = Free Trade Agreements; NZL = New Zealand. Shares of free trade agreements in global GDP are based on U.S. dollar GDP in current prices. Due to large heterogeneity in depth of preferential trade agreements, numbers exclusively report free trade agreements. Current FTAs for India are with ASEAN, Australia, Bangladesh, Bhutan, Japan, Nepal, Pakistan, Maldives, Singapore, Sri Lanka, and United Arab Emirates. “Under negotiation” refers to ongoing, formal negotiations or recently agreed but not yet ratified. 

Once India’s trade agreements with the EU, UK, Canada, and New Zealand are completed, they could more than double India’s access to global markets. Even better would be deeper trade agreements that also cover services, especially digital services. Trade agreements that incorporate digital provisions could increase the benefit for India’s main export specialization in business services.

Opening up to trade and FDI will help India grow in the medium and long run, with a vast literature showing the benefits to output and productivity growth.But what about job creation? India, like most other South Asian countries, has struggled with a declining employment-to-working age population ratio over the past decade and female labor force participation that is well below the EMDE average.

In the April 2024 South Asia Development Update, we showed that greater trade openness is associated with higher long-term employment ratios. And there is ample evidence from around the world, which we reviewed in our October 2024 South Asia Development Update, that export industries provide more employment opportunities for women.

Major policy shifts are often born from crisis. One of the most momentous overhauls of India’s policy architecture took place in the 1990s, with dramatic and lasting positive effects. Indian policymakers are indicating readiness to make bold changes once again. For instance, the “Make in India” platform provides an entry point for repositioning India as a central node in global value chains.

Greater trade openness may become the catalyst for the growth acceleration needed for Vikhsit Bharat. Now may be the window of opportunity for a bold policy shift.