The Federal Reserve Board published a FEDS Note by staff economist Patrice Robitaille examining India’s expanding role in the global economy and the constraints that keep its global GDP and trade shares below what its population size would suggest. The note contrasts India’s services-driven growth model with the manufacturing export-led paths followed by earlier high-growth Asian economies and frames two outlook questions: whether India can become more competitive in global manufacturing and whether export-oriented services can remain a major growth engine as generative artificial intelligence (AI) advances. The analysis highlights India’s rapid growth since the early 1990s, low income level and favorable demographics as supporting continued catch-up, while pointing to low female labor force participation as a brake on fully realizing demographic advantages. On manufacturing, it emphasizes long-standing obstacles including high trade barriers, opting out of the Regional Comprehensive Economic Partnership in 2019, a difficult business environment and weak inward foreign direct investment, alongside recent evidence that India is displacing China as a supplier of smartphones to the United States and policy moves such as reducing tariffs on smartphone components and using fiscal subsidies to promote electronics and semiconductor exports. On services, it notes that service exports exceeded 10 percent of GDP and account for almost half of total exports, but argues that a services-led model is less likely to absorb India’s largely unskilled workforce and could face disruption from generative AI, even as India’s large pool of STEM graduates may support adaptation and new demand. As a FEDS Note, the piece is presented as staff analysis rather than an official position of the Federal Reserve Board.

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