India’s exporters are getting little help from a weaker rupee as high tariffs and gaps in domestic manufacturing blunt the benefits, according to HSBC Holdings Plc. The weakness is concentrated in the middle of India’s export sector, HSBC’s Pranjul Bhandari said in a research note on Friday. High-tech products such as machinery and electronics respond relatively well to a cheaper rupee, while mid-tech goods including textiles, footwear and plastics barely respond, she said. India is also losing ground in exports of intermediate goods even as sales of finished products rise — often using imported components, as in the case of mobile phones, she added.

We find that India’s exports face a larger tariff than its peers, especially so for its mid-tech exports, Bhandari said. Furthermore, at home, higher import duties tend to create an inverted duty structure for several intermediate goods, discouraging manufacturing. Together, these tariff frictions blunt the full benefit of FX depreciation. Over the past 18 months, Bhandari pointed out that the rupee has fallen 11% against the dollar, 20% against the pound and 24% against the euro. While exports have risen, the increase hasn’t been enough to narrow India’s persistent trade deficit.

That disadvantage is already shaping India’s trade negotiations. Commerce Minister Piyush Goyal said Thursday that New Delhi will finalize a trade deal with the US only when Washington offers Indian exporters better tariff treatment than competitors such as Vietnam and Bangladesh. We have to see the rate that Vietnam pays in another country, what Bangladesh goods are charged, Goyal said. Our rates will be better. Bhandari said India’s recent burst of trade agreements could help amplify the benefit of a weaker rupee, particularly for the mid-tech industries that have struggled to gain market share. She argued India should also deepen trade ties with East Asia, an important source of components and a hub for regional supply chains. But signing deals is only the start. Their benefits will depend on implementation, rules of origin, compliance and reducing non-tariff barriers, Bhandari added. Combined with a weaker rupee, lower tariffs could give India an important opportunity to bring back the ‘missing middle’ of its exports.