Impact of Geopolitical Tensions on India's Economy
India's policymakers are grappling with the economic repercussions of the West Asia war, especially concerning oil and gas availability and pricing. Although a ceasefire temporarily alleviated these pressures, ongoing tensions between the United States and Iran have reignited economic concerns.
Global Trade and Economic Shifts
- The US' recent withdrawal from international cooperation and established UN standards signifies a shift in global relations, moving from cooperation to power dynamics.
- This transformation has greater implications than the immediate challenges posed by regional conflicts, affecting global trade and economic systems more profoundly.
The US and Global Trade
- The US has increasingly politicized its trade policies, impacting global supply chains and international corporate linkages.
- This approach has led to distrust from traditional allies and rivals alike, marking the US as an "Unreliable State."
China's Influence
- China's role as a manufacturing powerhouse is significant, controlling a substantial portion of global manufacturing production and trade.
- China uses its dominance in specific areas, like rare earths, as leverage in political relationships.
Policy Implications for India
- Policy must acknowledge that the era of depoliticized global trade has ended, with countries now prioritizing domestic interests.
- Bilateral and regional trade agreements are becoming increasingly important as nations protect key industries.
Financial Constraints and Opportunities
- While direct controls on finance are not yet prevalent, concerns over national government views, especially from the US, pose indirect constraints.
- Debate exists over the impact of free capital movement on deindustrialization, potentially leading to more constrained FDI and FII flows.
Strategic Manufacturing Policy
- India needs a strategic manufacturing policy to cope with global trade threats and correct declining manufacturing growth, which decreased from 17.4% of GVA in 2011-12 to 14.1% in 2025-26.
- This involves focusing on import substitution for critical products and industries with global market potential.
Strengthening R&D in Manufacturing
- India's R&D spending is significantly lower than China’s, both in percentage of GDP and in absolute terms.
- Only 35% of India’s R&D is conducted by non-government sectors, compared to 75% in China, highlighting a need for policy to push private sector R&D.
Shifting Corporate Focus
- Corporations must prioritize global competitiveness over political relations, aiming to increase manufacturing's GDP contribution to 25%.
- This shift could lead to a more dynamic, technologically independent manufacturing sector in a global context.
Note: The opinions expressed are personal views of the writer and do not necessarily reflect the position of Business Standard.
