Copyright infringement not intended

Picture Courtesy: Indian Express

Context:

The Economic Survey suggests shifting priority towards internal growth engines like domestic manufacturing and deregulation to counteract the increasing global trade barriers.

Why this shift is necessary?

The Economic Survey suggested strengthening internal growth engines, such as domestic manufacturing and deregulation, as global trade barriers surge.

The Survey warns that rising protectionism and geopolitical blocs are reversing decades of globalization, with trade restrictions now covering 887.7 billion in commerce (Oct 2023–Oct 2024), up sharply from 337.1 billion the previous year.

The Survey highlights that external conditions—like trade fragmentation, FDI reshoring, and geopolitical tensions—have turned hostile. With global trade growth stagnating and nations like the U.S. and China forming rival blocs, India must reduce dependency on volatile international markets by boosting local industries and empowering businesses through deregulation.

Global trade growth has halved compared to pre-pandemic levels, reflecting secular stagnation. The WTO notes restrictive measures now cover 12% of world trade, up from 6% in 2019, signaling a structural decline in globalization’s benefits and urgency for internal reforms.

What does the Economic Survey mean by "geo-economic fragmentation"?

Geo-economic fragmentation refers to countries splitting into rival geopolitical camps (e.g., U.S.-led v/s China-led blocs), imposing trade curbs, tech bans, and investment restrictions. This trend has led to a 24,000+ surge in global trade/investment barriers since 2020, stifling cross-border commerce and knowledge-sharing. The IMF warns such fragmentation could shrink global GDP by 7% long-term.

According to the Survey, over 24,000 new trade and investment restrictions were implemented globally between 2020 and 2024, which has led to a slowdown in global trade growth and signs of stagnation in the global economy.

The International Monetary Fund notes that trade fragmentation is extremely costly because global trade as a percentage of GDP has increased to 45%, compared to 16% during the Cold War.

How is China's dominance in global manufacturing and energy transition technologies influencing this scenario?

China dominates critical sectors: it produces 80% of solar panels, 60% of wind turbines, and 80% of global batteries.

According to the Survey, China account for nearly 29% of global manufacturing, and this will expected to increase to 45% by 2030, surpassing the US and its allies.

This dominance gives China strategic leverage over supply chains, energy transitions, and resources, forcing nations like India to rethink self-reliance strategies.

What are the implications of FDI reallocation due to geo-economic fragmentation?

The reallocation of Foreign Direct Investment (FDI) towards geopolitically aligned countries increases the vulnerability of emerging markets and developing economies.

The Survey highlights that FDI relocation, guided by practices like "friend-shoring" and "re-shoring," could leads to output losses, which disrupts global supply chains and reduces investment flows to countries that are not part of these aligned blocs. As a result, many nations face intensified economic risks and therefore must focus on strengthening their domestic economies to mitigate these challenges.

What is the way forward, as suggested by the Economic Survey, to address these challenges?

The Survey criticizes Western “one-size-fits-all” climate and labor standards, which disproportionately burden developing economies. Such policies, combined with trade curbs, deepen global divides and hinder equitable growth, pushing nations like India to prioritize self-sustaining models.

It advocates for deregulation, boosting domestic manufacturing (especially in green tech), and leveraging India’s demographic dividend through skill development.

Promoting innovation and reducing import reliance in critical sectors (e.g., solar panels, batteries) will insulate the economy from external volatility.

India’s large domestic market, young workforce, and democratic governance position it to attract firms seeking alternatives to China. By streamlining policies and investing in infrastructure, India can become a hub for reshored manufacturing and green tech, countering fragmentation risks. 

Must Read Articles: 

GLOBAL TRADE OUTLOOK AND STATISTICS REPORT

Source: 

NEW INDIAN EXPRESS