Context:
The Economic Survey 2024-25 has been quite frank in recognizing the reality of global drift toward geo economic fragmentation (GEF) and how that overseas has actually brought the curtain down on the globalization boom. With a future of slowing international trade and increasing protectionism, India is moving into a domestic driven growth strategy rather than an export led measure for the development of its economy.
Key Highlights:
Globalization’s Decline and Protectionism’s Rise
- Policymaking across the globe has gone inward to prioritize domestic economies against free trade.
- The level of tariff and non tariff barriers (TBTs) has increased and now affects 67.1% of global trade.
- Some 26.4 % of international shipments are affected by climate related trade restrictions.
- Donald Trump in his possible second term may hyper accelerate trade restrictions.
- According to research, trade fragmentation could reduce GDP globally by up to 7%.
India Moving Towards Domestic Led Growth
- As exports cannot drive 8% GDP growth, India will rely more on its domestic market while boosting import export relations.
- The changing geopolitical alignments will also see reduced FDI inflows for emerging economies.
- Concerns on the current account deficit may see lower imports and enhanced self reliance.
Reducing Dependence on China
- Impending need to diversify supply chain risks and geopolitical tensions.
- Survey 2023 said: Open up Chinese FDI. The last edition survey dropped that.
- Instead, India wants strengthening domestic supply chains at even higher costs.
Industrial Policy & Protectionism Making a Comeback
- There is high tariff making economic strategy, and this is true in India as well as the world.
- Average tariff rate of India increased from 13.4% (2016) to 17% (2023).
- PLI (Production Linked Incentive) scheme (year 2020) promotes domestic manufacturing.
- Compliments of Domestic content requirements: this mandates local sourcing in various projects.
- Policy is not dead, it’s being revived with an eye on the East Asian growth models and history of us economically with Europeans.
Recasting Structural Reforms
- The traditional reforms of privatization, flexibility in labor law, and land acquisition are not much stated in the new Survey.
- Other deregulation is emphasized to cut the bureaucracy and generate investment efficiency.
- On the other hand, regulation itself would not be enough: low uncertainty and policy stability are vital to increase investment benefits.
Uncertain Global Scenario & The Small Need for Increased Public Investment
- Businesses stand “awaiting and watching” due to the uncertainties of the outside world.
- The government may have to exceed the intended 10.1 percent increase in capital expenditure for FY26 to stimulate economic vigor.
India is now fast moving toward becoming self sufficient and domestic led growth. As global trade now shrinks and protectionism rises, the government shall employ high tariffs as well as incentive schemes for domestic production and reduce dependency from China.
