1. India and the World Economy: Policy Options at a Time of Geopolitical Drama, Technological Shifts, and Rising Protectionism
- Author:
- Fredrik Erixon, Dyuti Pandya, and Vanika Sharma
- Publication Date:
- 03-2025
- Content Type:
- Policy Brief
- Institution:
- European Centre for International Political Economy (ECIPE)
- Abstract:
- What trade policy should India pursue? Geopolitical drama and a faltering multilateral system have made choices of trade policy harder for many countries. Rising protectionism, economic nationalism, and growing scepticism towards globalisation eat into most trade relations. Technology-driven innovation and rapid changes in the composition of trade have added additional layers of complexity, forcing governments to develop new policies for cross-border economic integration. This is the inflection point for India’s trade policy: its traditional approach is increasingly unable to respond to new economic and political realities, and new approaches may be needed to deliver better economic outcomes. Using India’s external trade strategy as a starting point, this policy brief presents three strategic options for India, each reflecting varying degrees of trade openness as a means to drive economic development. Using categories from the world of soft drinks, we call them “Trade Zero”, Diet Trade” and “Trade Regular”. First, the Trade Zero approach allows India to maintain its defensive stance on trade, focusing primarily on the growth of its domestic market and demand. Trade only serves as a means to manage production surpluses. Second, the Diet Trade approach pushes India to softly enhance trade with its already well-established trading partners, ideally by focusing on high-value-added goods and services. The model emphasises deepening diplomatic relations through trade: however, not at the cost of domestic policy priorities. And lastly, the Trade Regular approach encourages the adoption of a more ambitious trade strategy with the aim of establishing India as a central hub connecting major global economic regions. This would happen through upgrading existing trade agreements, signing new multilateral trade agreements, as well as adopting significant domestic reforms for further economic liberalisation. India’s trade performance provides the actual context of the realities of India’s trade policy. There are some notable features in India’s trade performance: its trade sector is small (international trade as a share of the GDP); it has a large services export sector compared to the export of goods; exports of high-value added goods and services has increased substantially; there is a consistently large share of big economies such as the United States and the European Union in India’s exports. All these features point to India’s position in global trade as a relatively high-value added economy. India, therefore, not only has an opportunity to leverage its trade capacity to significantly improve economic growth but can also adapt to newer forms of trade and increasingly engage with the global economy. Moreover, given the shifting global context and the increasing trade reciprocity demands from larger economies, India will also need to strengthen its trade relations with a diverse set of partners. In a way, India’s economy has already made the choice of which model that suits it best. Given the key features of the country’s trade sector, India’s real economy is already moving towards a Trade Regular model. However, there is a gap between the actual performance and policy positions, which remain defensive. Future trade growth, however, will likely depend on India becoming more pro-active in its trade policy and better equipped to negotiate trade agreements that respond the ambitions of its outward-oriented companies.
- Topic:
- Science and Technology, Geopolitics, and Trade Policy
- Political Geography:
- South Asia and India