India’s export story is currently at a critical juncture. On one hand, the country just inked a significant Free Trade Agreement with the United Kingdom and has surpassed the $824.9 billion mark in combined merchandise and services exports for the fiscal year 2024-2025. On the other hand, India’s aspirations are encountering a tougher reality—the imposition of US tariffs, increased scrutiny of trade balances, and a global slowdown in demand.
The headlines look impressive; however, beneath the upbeat numbers lurks a fundamental question: what are we precisely exporting, and how do these exports influence the capabilities of our economy? The answer lies in a concept that is little discussed in India’s policy circles but has significantly altered the way economists view trade and growth: the Product Complexity Index (PCI).
What is Product Complexity Index?
This index does not measure the price of an export; rather, it evaluates the expertise embedded within it.
Consider raw cotton, which is grown across dozens of countries and requires limited specialised skills. On the PCI, it ranks low. In contrast, only a few nations manufacture semiconductor chips, and the process demands deep technological ecosystems and advanced knowledge, thus ranking high on the PCI
In short and simple terms, low-PCI products are common, easy to make, and exhibit minimal capability spillovers. Whereas high-PCI products are scarce, difficult to manufacture, and possess knowledge that extends into related industries.
Economists Ricardo Hausmann and César Hidalgo, who introduced the PCI and its broader cousin, the Economic Complexity Index (ECI), identified a notable trend—countries that move up the PCI ladder grow faster, diversify quicker, and become more resilient to economic shocks. Therefore, the PCI serves as an indicator of an economy’s untapped productive capabilities.
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India’s export story
On paper, India’s trade progress appears healthy.
In fiscal year 2024-25, electronics exports amounted to $38.58 billion, increasing from $29.12 billion in the previous year, which constitutes a growth of over 32 per cent.
In the first quarter of the fiscal year 2025-2026, electronics exports experienced a significant increase of 47 per cent year-on-year, reaching a total of $12.41 billion.
Pharmaceutical exports in fiscal year 2024-25 increased to $30.47 billion compared to $27.85 billion in the preceding year.
The production value of mobile phones increased significantly from Rs 18,900 crore in the fiscal year 2014-2015 to over Rs 4,22,000 crore in the fiscal year 2023-24. Notably, 99 per cent of the mobile phones sold domestically are now manufactured in India.
While these are bright spots, it is important to recognise that India’s top export commodities are refined petroleum, gems and jewellery, and textiles—products that rank relatively low on PCI. Although these sectors contribute significantly to foreign exchange earnings and employment, they lack the deep capabilities necessary for sustained technological advancement. This duality, evident in the progress within the electronics and pharmaceutical industries, alongside dependence on low-complexity goods, aptly captures India’s challenge. We are present in complex products, yet not dominant.
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More than just numbers
Achieving export milestones undoubtedly looks good in the headlines. However, the concept of PCI shifts the question: do these exports facilitate India’s engagement in more complex and challenging industries?
High-PCI exports build ecosystems. For instance, a country that manufactures precision instruments may have the potential to diversify into the aerospace sector. Conversely, a nation that primarily exports raw cotton may struggle to make that leap.
The international evidence is clear: South Korea in the 1970s exported wigs and textiles. Through persistent advancement up the PCI ladder, it has now established itself as a leader in semiconductors, automobiles, and shipbuilding. Vietnam, within a decade, successfully integrated into global value chains in electronics, swiftly transitioning to high-PCI exports.
In contrast, countries that remain dependent on low-PCI exports, such as those reliant on oil or minerals, often remain trapped in volatility and stagnation.
India’s export structure, seen through PCI, indicates incremental progress but not a decisive climb.
There are three reasons why India cannot afford to ignore PCI any longer.
1. Trade deals must target complexity, not just access
The India-UK FTA represents a major diplomatic win. However, the bigger question is: does it open pathways for India’s high PCI sectors—medical devices, renewable energy, and advanced engineering? Or does it simply strengthen our existing areas of expertise? Without a PCI filter, trade deals might end up bolstering the less beneficial segments of our export basket.
2. Industrial policy must be anchored in PCI
The Production Linked Incentive (PLI) schemes have significantly advanced domestic manufacturing, especially in the electronics sector. However, some funds are still directed toward industries with limited PCI gains. A more strategic approach could ensure that public funds drive complexity rather than merely increasing scale.
3. Resilience comes from complexity
The pandemic and the Ukraine war highlighted the vulnerability of supply chains. Economies with diversified, complex export baskets, such as Germany and South Korea, bounced back faster. PCI focuses not only on growth but also on creating economies that can withstand shocks.
Meanwhile, New Delhi has recently initiated a product-mapping drive across 50 countries through its embassies, aiming to identify new opportunities for trade diversification. This is a promising step—it signals that India is not satisfied with a limited export base and is proactively aligning its supply strengths with global market demand.
However, there exists a potential risk. Diversification without complexity can be misleading. If our product-mapping analysis identifies a strong demand for gems in the Middle East or cotton in Africa, and we intensify our focus on these areas, we might succeed in broadening markets, but not necessarily enhance our capabilities. PCI forces a sharper question—among the identified opportunities, which products push India into new technological frontiers? Which are the ones that foster spillovers into advanced engineering, biotech, or renewables? Only by applying this criterion can product mapping evolve from a mere market-expansion tool to a strategy for capacity-building.
To make this transformation real, India must develop a PCI-driven roadmap. This involves monitoring exports by complexity through an annual PCI/ECI report, formulating FTAs that facilitate the exchange of high-complexity goods, and directing industrial policy and ecosystems toward sectors rich in capabilities. India must also assist Small and Medium Enterprises (SMEs) in progressing from low-value assembly to design and advanced production. This approach doesn’t entail abandoning traditional exports; it means refusing to accept them as our ceiling.
The World Trade Organization (WTO) once encouraged nations to look beyond just gross exports and consider trade in terms of value-added, questioning how much of an export genuinely comes from domestic contribution. The PCI takes this further by examining whether these exports incorporate know-how and capabilities that few others can match.
In this regard, India has a wide range but lacks depth. PCI doesn’t say abandon cotton or gems; it says not to stop there. Nations advance through the sophistication of their capabilities, not just their size.
For India to develop genuine trade power, PCI must move from academic jargon to the heart of policymaking. Because in today’s economy, what you export matters as much as how much.
Bidisha Bhattacharya is an Associate Fellow, Chintan Research Foundation. She tweets @Bidishabh. Views are personal.
(Edited by Saptak Datta)
The culprit is the Gandhi-Nehru village mentality of our politicians. Socialist India focuses on low-tech, labor-intensive manufacturing. Apparently, high-tech, complex, precision-engineered manufacturing doesn’t fetch votes for the government.