Herfindahl–Hirschman Index (HHI)

The latest Trade Watch Quarterly report released by NITI Aayog for Q3 FY2025–26 highlights contrasting trends in India’s trade structure using the Herfindahl–Hirschman Index (HHI). 

Export Diversification on the Rise

The report notes that India’s export concentration is declining, indicating that the country is diversifying its export basket and reducing dependence on a limited number of products or markets. This trend reflects improved resilience and competitiveness in global trade. 

Imports Remain Highly Concentrated

In contrast, India’s imports continue to remain heavily concentrated, particularly in critical sectors such as mineral fuels and electronics. This suggests continued reliance on a few sources, posing potential vulnerabilities in supply chains. 

Understanding the Herfindahl–Hirschman Index (HHI)

The Herfindahl–Hirschman Index is a widely used metric to assess market concentration and competitiveness. It is calculated by squaring the market share of each firm in an industry and summing these values.

• The index ranges from near zero to 10,000
• Lower values indicate a more competitive and diversified market
• Higher values indicate greater concentration or dominance by a few players

HHI is commonly used in mergers and acquisitions (M&A) analysis to evaluate market structure before and after consolidation.