Growing trade protectionism may be to India’s benefit: S&P

India could see a potential to grow its manufacturing exports as protectionist policies become increasingly prevalent in global trade, S&P Global Market Intelligence said in a report.

Companies looking to move operations out of countries like China, Vietnam, and Thailand might turn to India, analysts said in the report.

The shift could help India improve its small share of global manufacturing exports, which last year stood at 1.8%.

India is, however, still feeling the pressure from higher tariffs on exports to the US—its biggest trade partner. Global uncertainty in trade and finance is also making businesses more cautious, especially when it comes to investment.

S&P Global analysts said these same challenges could lead to long-term benefits if India becomes a preferred destination in global supply chains.

To boost domestic manufacturing, India rolled out production-linked incentive (PLI) schemes since 2020.

These have helped grow exports in electronics, pharmaceuticals, and cars.

Mobile phone exports, for example, jumped to $20.4 billion in 2024 after Apple moved some production from China to India.

According to recent data from HSBC and S&P Global, India’s manufacturing sector is doing well, given the steady demand and hiring.

Despite this progress, India continues to face challenges, the report said.

Manufacturing made up only 17.2% of India’s gross domestic product in 2024–25, well below the government’s target of 25%.

Foreign direct investment (FDI) in India dropped from 6.5% in 2020–21 to 2.1% in 2023–24.

Even though India subscribes well on finance availability, it struggles with finding enough skilled labor for advanced manufacturing jobs.

The Reserve Bank of India may expand lending support to key industries like semiconductors and defense by changing loan rules and easing capital requirements, the report said.

Some early signs this year showed that loans to manufacturers are picking up again because of India’s inclusion in global bond indexes.

If these trends continue, India could see a 1.3 percentage point boost to its GDP by 2034–35. Over the next decade, the economy is expected to grow at an average of 5.7% per year.