UPSC Editorial Analysis: India in a Fragmenting Global Economic Order

General Studies-3; Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

Introduction

• Globalisation, understood as the deep integration of economies through flows of trade, capital, labour, and knowledge, played a pivotal role in reshaping India after 1991. It transformed India from a relatively closed economy into a dynamic participant in global value chains, particularly in services, remittances, and capital movements.
• Yet, this phase of rapid integration is now facing mounting challenges. Structural shifts, protectionist tendencies in advanced economies, geopolitical rivalries, and the rise of economic nationalism are reshaping the global economic architecture.
• Having reaped substantial benefits from globalisation, India today finds itself at a critical juncture, where it must recalibrate both its external engagement strategy and domestic preparedness in an increasingly fragmented global system.

India’s Growth Trajectory in the Globalisation Phase: Major Gains

• Acceleration in GDP Growth
  • India transitioned from the modest “Hindu rate of growth” (~3.5% during 1950–1990) to an average growth rate of around 6.5% following economic reforms.
  • Per capita income rose significantly—from about $320 to over $2,500—indicating improved living standards.
• Expansion of Services Exports
  • India emerged as a global hub for IT, BPO, and KPO services.
  • The rise of Global Capability Centres (GCCs) in cities such as Bengaluru and Hyderabad attracted leading multinational corporations.
• Sustained Remittance Inflows
  • Supported by a large diaspora, India consistently ranked among the top recipients of global remittances.
  • These inflows played a stabilising role in the current account and boosted domestic consumption.
• Growth in Capital Inflows
  • Continuous inflows of FDI and FPI contributed to infrastructure development, startup ecosystems, and industrial expansion.
  • Sectoral liberalisation in areas like telecom, aviation, and banking enabled deeper integration with global capital.

Emerging Challenges: The Shift Towards De-Globalisation

• Deceleration in Global Trade
  • IMF projections suggest subdued global trade growth of 1.7% (2025) and 2.5% (2026), well below historical trends.
  • This contrasts sharply with the WTO’s estimate of an average 5.8% annual growth between 1995 and 2023.
• Increasing Protectionism
  • The United States has raised tariffs to levels unseen since 1901, marking a shift away from its post-WWII liberal trade stance.
  • Trade tensions such as the US–China conflict, along with policies like “Buy American,” reflect a move toward supply chain nationalism.
• Geoeconomic Fragmentation
  • The global economy is witnessing the emergence of competing blocs centred around major powers like the US, China, and the EU.
  • Trade is increasingly being used as a strategic tool, with restrictions on technologies, semiconductors, and rare earth materials.
• Weakening Multilateral Institutions
  • Institutions such as the WTO and World Bank are facing credibility and effectiveness challenges.
  • There is a growing shift toward bilateral and regional agreements, reducing reliance on global consensus mechanisms.

Implications for India: Risks and Strategic Concerns

• Potential Impact on GDP Growth
  • Export-oriented sectors may face headwinds, potentially lowering growth rates by about 1% in the short term.
• Challenges in the Services Sector
  • While India’s IT sector remains robust, global clients are reducing discretionary technology spending.
  • Automation through AI and the trend of nearshoring could erode India’s traditional cost advantage.
• Volatility in Investment Flows
  • Global investors may prefer safer markets, leading to reduced capital inflows into emerging economies like India.
  • This could tighten liquidity in capital markets and affect startup funding.
• External Demand Uncertainty
  • Geopolitical tensions, including regional conflicts and instability in remittance-generating regions like West Asia, add to economic uncertainty.

Way Forward

• Enhancing Domestic Competitiveness
  • Improve ease of doing business through simplified regulations, decriminalisation of compliance, and labour law reforms.
  • Rationalise taxation and ensure faster dispute resolution to attract investment.
• Balancing Self-Reliance with Global Integration
  • The vision of Atmanirbhar Bharat should focus on resilience rather than isolation, especially in sectors like semiconductors, defence, and green energy.
• Diversifying Exports
  • Move toward high-value sectors such as electronics, pharmaceuticals, defence manufacturing, and clean technologies.
  • Actively pursue trade agreements with regions like the EU, EFTA, the UK, and countries of the Global South.
• Strengthening Regional Cooperation
  • Leverage platforms like BIMSTEC, IORA, and the Indo-Pacific Economic Framework (IPEF).
  • Play a leadership role in Global South cooperation initiatives.
• Promoting Digital Public Infrastructure Globally
  • Export platforms like India Stack, UPI, and Aadhaar-based systems.
  • These can enhance India’s strategic influence and digital soft power.

Conclusion

• The era of unrestricted globalisation appears to be waning, giving way to a more fragmented and strategic global order.
• India must adapt through a calibrated approach—combining selective integration, economic resilience, and proactive global engagement. By leveraging its demographic dividend, digital capabilities, and reform momentum, India can not only navigate the post-globalisation landscape but also shape its future trajectory.