Export dilemma: The 'shrimp vs smartphone' debate in India-US trade

How US tariffs are forcing India to weigh exports of labour-intensive products against technology-intensive ones. One is a job creator, the other a sunshine industry. It is not an easy choice

Indian exports to the US are caught in a “shrimp or smartphones” dilemma. Exporting large volumes of labour-intensive products such as shrimp creates jobs and shores up small busine­sses. Shipping technology-intensive smartphones, on the other hand, enhances export earnings as they are high-value goods. 

The trouble is, it’s not a level playing field. In the age of US President Donald Trump’s tariff tantrums, the US has exe­m­pted Indian smartphones and pharmaceuticals — both seen as techn­o­logy- -intensive sectors — from all duties, leaving labour-intensive sectors to bear the brunt of tariffs that can be as high as 50 per cent. This is forcing India’s hands.Does India need to strike a finer balance between the two? 

One or the other? 

It has to be a blend of the two, said Ajay Sahai, director general and chief executive officer of Federation of Indian Export Organisations (FIEO). “We require capital-intensive exports to touch the $1 trillion exports target. We have to focus on that, because the global demand in this segment is growing, and still, we have much more scope to move. But I think we require labour-intensive sectors for creating jobs in the country, despite them not fetching us much foreign exchange.” 

 India’s labour-intensive exports, making up over a third of its US-bound shipments, have been hit the hardest by Trump’s tariffs, with competitors jumping in to leverage tariff rate differences. Nearly 20 per cent of Indian exports to the US in FY25 were textiles and agricultural products — the two manufacturing sectors employing the largest number of people. 

On the other hand, the growing global demand for technology-intensive products has heightened the importance of high-value technology-intensive manufacturing to enhance the value of exports. The share of high-tech goods in India’s total export mix has been rising, thanks largely to smartphone exports. 

Micro, small and medium enterprises (MSMEs), which primarily exports labour-intensive and low-tech products, are the second-largest employer and contributor to India’s gross domestic product (GDP), after agriculture, employing around 280 million people. 

 According to data from the MSME ministry, the contribution of the MSME sector in India’s overall merchandise exports rose from 45.74 per cent in 2023-24 to 48.55 per cent in 2024-25. With nearly half the exports coming from MSMEs, they form the backbone of India’s merchandise trade. 

 A NITI Aayog report said Vietnam, Bangladesh, and China had a higher share of low-skilled goods exports, given the size of their working-age population, than India. This implies that India has been less able to leverage its low-labour cost advantage, which could have meant a stronger MSME sector and more jobs. 

But the rising importance of tech-based exports requires India to crack the puzzle of which type of exports, in terms of technology intensity, it should focus on. 

 Ajay Srivastava, founder of Global Trade Research Initiative (GTRI), argues that India should focus on everything: “We have the expertise to make everything except very high-end products like 2-5 nm chips.” 

 Some of that may already be happening. The value-share of Indian high-tech exports to the world has more than doubled from 8.6 per cent in 2013 to nearly 21 per cent in the first half of 2025 (H1 CY25). 

 The rise is even more dramatic when it comes to Indian exports to the US, with the share of high-tech exports quadrupling in the same period. And this share has jumped further from 24.44 per cent in 2024 to 35.79 per cent in H1 CY25. Smartphones, of which the US is the largest market, are the driver. 

 In tandem, the share (in value terms) of low-tech and medium-low-tech exports by India to the world has declined. Low-tech sectors primarily comprise textiles, agriculture and allied products, while medium-low-tech is led by products made out of crude oil, minerals and basic metals. 

The share of low-tech exports in India’s global exports dipped from 28.21 per cent in 2013 to 23.41 per cent in H1 CY25, while that of medium-low-tech exports saw a sharper drop from 47.56 per cent to 34.55 per cent in the same period. The fall in these export categories was even starker for US-bound shipments. 

Business Standard used a methodology cited in the NITI Aayog publication Trade Watch Quarterly to calculate India’s merchandise trade flows in terms of technology-intensity. 

High-tech imports inch up 

India’s high-tech imports from around the world have also seen a rise over the last decade, inching up from 14.2 per cent in 2013 to 24.7 per cent in H1 CY25, with a commensurate decrease in the medium-low-tech imports. The majority of India’s imports from China are high-tech goods, with the share rising from 49.21 per cent in 2013 to 57.67 per cent in H1 CY25. 

 Is there, then, a link between high-tech imports from China and India’s increasing share of high-tech exports? This appears to be the case: With the production-linked incentive (PLI) scheme for electronic components, announced in the 2025-26 union budget, yet to take off, this sector is dependent on imports as of now. 

 Sahai agreed: “We have not created the ecosystem for development of parts and components (intermediates). That’s why they are focusing on that in the new PLI scheme. In the initial scheme, the focus was on the end-product and companies came to India for manufacturing the end-product. But since there is an absence of manufacturing of intermediate goods here, they are importing that (intermediates).” 

High-tech intermediates such as semiconductor chips for smartphones, photovoltaic cells for solar modules and other components of electrical machinery continue to be largely imported. 

 Biswajit Dhar, distinguished professor at the Council for Social Developme­nt, argues that this is not unusual — it would happen if you are part of global value chains. “But too much dependen­ce on imports of components is also not justified because the global economy is going through a lot of stress. The important thing is to ensure that there are at least some sectors in which we have the production capabilities of intermediates.” 

Dhar cites the pharmaceutical sector, where he said: “It’s very important that the bulk drugs or the active pharmaceutical ingredients (APIs) are manufactured in India to ensure quality finished products. Now, if you are importing too much of APIs from China, we are not sure about the quality.” Is the trend of high-tech imports pushing high-tech exports peculiar to India or does every developing economy go through this process?

 

Srivastava said it is a starting point for any economy. “Even China started like this: They were assemblers, importing most things, and then they started making things in their own country as ancillary industries developed around the assemblers.”

 According to World Bank data, high-tech goods made up just 15 per cent of India’s manufacturing exports in 2023, up from 9 per cent in 2014. Although rising, India’s share was much below that of its peer economies. 

 The UK had the highest share of 29 per cent in 2023, while China’s share declined from 30 per cent in 2014 to 27 per cent in 2023. Meanwhile, the share of high-technology exports, for the US, the EU and Japan, in manufactured exports was 22 per cent, 19 per cent, and 17 per cent respectively in 2023. 

What’s the solution? 

Dhar reckons India’s exports are concentrated in a few product groups, but these are also import-intensive. “If their production is critically dependent so much on imports that they could be disrupted, then this is not a good sign. The government, in the PLI, tried to address this problem by promoting API production or component manufacturing in electronics production. But it hasn’t gone very far. So I think the government also needs to understand why this is not happening,” he added. 

 Sahai believes that once the PLIs are rolled out for intermediates, either the existing companies or new ones will be set up as ancillaries to supply these components. “Wherever we have the availability of raw material to make components and final goods, the focus should be to create an ecosystem and somehow start manufacturing in the country — either by domestic companies or by attracting foreign direct investment because FDI not only brings equity, but also capital and market,” he added. 

 Srivastava suggests a focus on “deep manufacturing” — developing capabilities and manufacturing at different stages of a product value chain. “The PLI-type schemes support superficial manufacturing like assembling (assembling is just one part of the manufacturing process). Now it’s time for PLI 2.0 where the focus is on manufacturing both the intermediates as well as the finished product. I think the PLI for electronic components may be one step in that direction.”   

“For making iPhones right now, we are importing all the components. Why not start making components here in India at a competitive price? You have to go deeper into the value chain,” he says. 

 But India needs to tap the labour cost differential for its advantage as well. According to a report by GTRI, Chinese MSMEs exported goods worth $200 billion through ecommerce alone in 2022, while India’s ecommerce exports were just $2 billion.  

 It’s not going to be easy, but the inflection point is right here. The choices India makes today will define its journey towards the vision of ‘Viksit Bharat’ — developed India.