India’s Geo-economic Adaptation and its Pivotal Role in Reshaping the Global Trade Order

I. Introduction

India stands at a critical juncture in the reformation of the global trade order, actively seeking deeper integration into global value chains (GVCs) and investment flows. With its youthful demographic profile, rapid economic growth and an ambitious digitalization drive, India is poised to play an enhanced role in global trade discussions. As the fastest-growing major economy, India is likely to become the world's fourth largest in 2025, overtaking Japan in aggregate gross domestic product (GDP) (IMF, 2025ii). By 2030-31, it is projected to be the third-largest economy, behind the United States and China. The International Monetary Fund (IMF) (2025) recently forecast India’s GDP to grow at an annual rate of more than 6 percent for both 2025 and 2026, anticipating robust domestic demand and a favourable monsoon.

India's vibrant tech ecosystem further underscores its dynamism. In the 10 years to 2023, the number of start-ups in the country went from just 2,000 to more than 31,000, according to national software industry association Nasscom (2023). By January 2025 that number had risen to 159,157, making India the third-largest tech startup ecosystem globally (Nasscom, 2025). These included 73,151 start-ups with at least one woman director (as of October 2024, and more than 100 unicorns (start-ups still under private ownership with a value of more than US$1 billion). One news report said India’s unicorns were worth a combined US$ 350 billion, and that women led 18 percent of the country’s startups (Parveen, 2024).

India's present course, however, exhibits a stark contrast to the historical paths of East Asian economies China and South Korea. These nations experienced peak growth rates exceeding 10 percent per year and leveraged massive foreign investment inflows for export-led manufacturing during an era of hyper-globalization over the last three decades of the 20^th Century. India's rise began later, in a significantly altered and challenging global landscape sometimes described as "slowbalization" or even "deglobalization." China, which had a similar per-capita income to India in the 1980s, is now five times richer, a testament to its successful integration into GVCs through labour-intensive manufacturing and substantial foreign investment.

A popular but simplistic narrative attributes China and South Korea's high performances to authoritarian leadership. However, serious academic research consistently refutes this, demonstrating that leaders in these East Asian nations cultivated environments conducive to sustained growth through collaboration with diverse societal sectors. This involved: fostering stable business environments; maintaining a competent bureaucracy balancing autonomy with accountability; and, crucially, investing in skills and ensuring access to minimum education standards. Such foundations enabled them to exploit trade openness effectively through labour-intensive exports, generating employment and facilitating the transition to more productive manufacturing jobs.

In contrast, India's growth has been uniquely driven byinformation technology (IT) and IT-enabled services.While highly productive, this sector has not adequately addressed India's burgeoning youth employment needs, particularly for its vast low-skilled and less-educated workforce. Labour-intensive manufacturing in India has long faced formidable constraints, including a lack of scale, burdensome regulatory compliance, and inconsistent implementation of policies. India's extraordinary diversity in all senses means there is no single, simple national solution to these challenges.

To achieve its domestic aspirations and secure its rightful place among global powers, India requires greater, not less, engagement with the global economy. This necessitates enhancing competitiveness in labour-intensive sectors while simultaneously deepening its demonstrated edge in high-tech industries. Among other weaknesses to be overcome, a significant portion of Indians are underemployed or discouraged from joining the labour force. While female labour force participation rate has improved, reaching 37 percent in 2023 according to the Indian Government (2023), it remains significantly lower than the East Asian average of around 63 percent, limiting consumption and export potential. Moreover, the manufacturing sector, despite three decades of policy focus since 1995, has remained stagnant at around 17 percent of GDP. This hinders India's capacity to absorb the growing demand for employment in sectors traditionally reliant on an abundant, less-skilled workforce, consequently impacting its participation in regional and global value chains. Deficiencies in the Indian education system also play a role, as does the inability of cities to productively integrate the vast numbers of rural-to-urban migrants – a potential boon for efficiency. Addressing these multifaceted issues will require cooperative federalism, a long-standing government objective, given that policy implementation currently occurs primarily at state and city levels. Collaboration across different tiers of government, irrespective of political affiliations, is paramount.

While many second- and third-generation reforms are vital and on the agenda, this article specifically focuses on India's potential role in reinvigorating the rules-based world trade order. This order has been progressively undermined by China's trade strategies, which are often inconsistent with its commitments under the World Trade Organization (WTO), alongside the aggressive unilateralism of the US, which perceives that system as prejudicial to its interests. This unilateralism is not new; economist Jagdish Bhagwati notably criticized the US's use of aggressive unilateralism in trade policy during the 1990s. He argued that the US's unilateral coercion of other countries through its own domestic trade laws (such as Section 301 of the Trade Act of 1974, which authorizes the US trade representative to make, suspend or alter bilateral trade agreements in response to a trading partner’s behaviour) risked sparking trade wars and retaliation, thereby destabilizing the global trade order. Bhagwati is particularly critical of linking trade sanctions to non-trade issues (such as labour rights or environmental standards), viewing them as disguised protectionist measures. Nevertheless, most modern agreements now explicitly specify such standards, making them de rigueur in cross-border trade. For India, it is crucial to recognize that international engagement will only serve as a force multiplier if adequate domestic reforms keep pace with the evolving dynamics of international trade.

II. India’s evolving role in global trade

As a founding member of the General Agreement on Tariffs and Trade (GATT) in 1948, India has a historical stake in the multilateral trading system. GATT aimed to foster international trade by reducing tariffs and trade barriers. Over time, as global trade grew in complexity, GATT’s limitations in addressing non-tariff barriers (e.g. phytosanitary or labour conditions, as discussed above), services, intellectual property, and dispute resolution became evident. This led to the Uruguay Round of negotiations (1986–1994), which culminated in the establishment of the WTO in 1995. The WTO, a permanent multilateral institution, significantly expanded the scope of trade rules to include new areas such as trade in services and intellectual property, and critically, established a dispute settlement mechanism to enhance enforcement and compliance.

In the WTO's formative years, the emphasis on Special and Differential Treatment (S&DT) reflected the importance of market access for emerging economies to meet their growth and development objectives. India actively engaged, advocating for crucial issues such as agricultural subsidies, public stockholding for food security, and technology transfer, often representing not only its own interests but also those of other like-minded developing economies. Occasionally, India was perceived (at times unjustifiably) as a deal-breaker in negotiations due to its firm stance. Alongside Brazil, India pressed for reductions in agricultural subsidies by developed nations (especially the US and European Union), which developed countries largely resisted. Conversely, developed nations sought greater market access in emerging economies, a move that countries such as India opposed due to concerns about adverse impacts on domestic industries. India also resisted sector-specific agreements outside the Doha Development Agenda (DDA) framework, such as the Plurilateral Agreement on Government Procurement and Information Technology Agreement 2, arguing these undermined the WTO's multilateral nature.

The ultimate failure of the DDA epitomizes the profound systemic challenges in reconciling diverse national interests within the WTO framework. Today, fundamental disagreements persist within the WTO, exacerbated by widespread scepticism about globalization, rising nationalistic tendencies, and growing protectionist industrial agendas. Furthermore, a deep mistrust exists between emerging or developing countries on one hand and industrialized nations on the other regarding market liberalization for the trade in agricultural goods in one direction, and industrial goods and services in the other: Emerging markets seek greater access to developed countries' agricultural markets, while industrialized countries aim to open markets for industrial goods in emerging economies. A significant additional concern is Chinese state capitalism, which, driven by a successful industrial policy, increasingly generates competitive distortions in global markets, benefiting Chinese firms to the detriment of others (Matthes, 2020). The ensuing technology competition has seen the US exert considerable pressure on its allies to decouple from Chinese supply chains, and take strong unilateral action against Chinese technology firms such as ZTE and Huawei (Medeiros, 2019). For many in the US, this technology competition is as much about dominance in critical high-tech sectors as it is about maintaining overall technological and military superiority.

Notwithstanding the legitimacy of these rival claims, the DDA's impasse left the WTO at a crossroads, questioning its relevance in an era increasingly dominated by regional and bilateral trade agreements. India's foray into free trade agreements (FTAs) began in the 1990s as a complement to multilateralism, primarily to secure market access and import critical raw materials and capital goods for development. The stalemate of the Doha Round of trade talks (launched in 2001 and currently on hold) has served as the proximate catalyst for renewed interest among emerging economies, including India, in pursuing further trade liberalization through regional trade agreements (RTAs). For India, the turning point was 2004. The early 2000s saw a global proliferation of FTAs. Many of India's major trading partners and competitors (especially in East Asia) were actively signing FTAs with each other. India risked being left out that could disadvantage its exports by eroding its competitiveness in markets where others had preferential access. To avoid trade diversion and maintain relevance in global supply chains, India needed to join this trend. Agreements like the India-Thailand FTA (Early Harvest Scheme signed in 2003, effective 2004) and the India-Singapore CECA (signed 2005, effective 2005) were early examples of this renewed engagement with the East.

Two decades on, however, India remains ambivalent of the utility of many such trade agreements, with their narrative often dominated by entrenched interests rather than an informed discourse on economic impact. Concerns about damage to local manufacturing, persistent trade deficits, and a patriotism under the slogan "Make in India" often govern the discourse. For the most part, these assertions lack the backing of robust data, yet their popular appeal has led to a long-standing reluctance to pursue second- and third-generation trade reforms or even to prompt an informed debate about their actual costs and benefits. The persistent question of why India suffers trade deficits with its bilateral agreement partners and with the Association of Southeast Asian Nations (ASEAN) trading bloc is as indicative of a misleading political discourse as it is of the actual economic impact of these agreements.

Both the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) exclude the US. Notably, the CPTPP goes a step further by also excluding China, which can lead to potentially smoother negotiations. A close examination of recent trade data reveals insightful dynamics. Firstly, India's trade deficit within FTAs is predominantly driven by imports of intermediate goods. For instance, intermediate goods constitute around 70-80 percent of India's total imports under FTAs with partners in East Asia and ASEAN (excluding Singapore), and over 90 percent with the United Arab Emirates (UAE) and Australia. Crucially, this is a positive indicator, as efficient sourcing of essential intermediate goods strengthens backward linkages, thereby enhancing the competitiveness of domestic manufacturing and exports. Furthermore, India’s intermediate goods exports to East Asian countries have begun to rise, suggesting increasing forward linkages within GVCs. Secondly, contrary to the popular narrative of India becoming a dumping ground for finished goods, India has maintained a surplus in finished goods trade with many FTA partners, including within the ASEAN bloc (See Figure 1). Evidence also indicates that India's exports of finished goods have grown significantly following the signing of trade agreements, largely mitigating the political anxiety associated with a trade deficit. For example, total exports to ASEAN members surged from $5 billion in 2003 to over $40 billion in 2022-23, with finished goods exports increasing from $2 billion to more than $20 billion in the same period. In the case of South Korea, India’s finished goods exports rose from just $200 million in 2003 to over $2 billion today.

A simulation exercise comparing the impacts of India joining the RCEP versus the CPTPP suggests that the CPTPP would yield a more balanced trade effect (Kathurai and Gupta, 2025). The exclusion of the two dominant global powers, the US and China, creates a more favourable negotiating atmosphere. In contrast, the RCEP, with its significant Chinese influence, poses greater potential risks. While the RCEP could facilitate intermediate goods trade, it is likely to exacerbate India's overall trade deficit, with our model predicting China as the primary beneficiary, accounting for over 75 percent of India's increased imports. While imports would also rise under the CPTPP (primarily from ASEAN), there is significant potential for export growth to countries such as Mexico, Canada, and Australia. Furthermore, the CPTPP’s emphasis on high-quality standards and intellectual property aligns well with India's long-term economic aspirations. Given India’s escalating need for a more liberalized trade policy to fully integrate with global markets, the CPTPP appears to be a more practical and strategic pathway, both economically and politically, due to China's exclusion easing the political economy considerations.

However, certain concerns for emerging economies such as India persist when entering such agreements. A weakening WTO system raises questions about the effectiveness of enforcing trade rules even within large-scale RTAs. While regional agreements might be seen as bypassing the WTO, a well-structured RTA should ideally include a robust dispute resolution framework. Another major concern for India revolves around the strict standards advocated by RTAs, such as the CPTPP, concerning labour, the environment, competition policy, and intellectual property. This contentious issue stems from the imposition of regulatory frameworks by developed countries that enforce stringent labour and environmental standards, occasionally above global benchmarks, and which can sometimes neutralize comparative advantages. A "safety-valve" model that defines acceptable deficit or loss thresholds per country, outlining corresponding conditions, could be considered. This method is recommended because the benefits of FTAs are often intangible and difficult to quantify against a specific commitment, whereas trade deficits are tangible numbers that often create a bias against FTAs. A safety-valve approach would also reduce the need for extensive forecasting, shifting the focus to addressing challenges that emerge from the continuous operation of the FTA.

All things considered, a re-evaluation of the prevailing pessimism surrounding trade agreements is imperative for India. To mitigate the perceived negative impacts of FTAs and RTAs, India's trade and industrial policies must actively encourage exports of both intermediate and finished goods, while simultaneously attracting foreign companies to establish domestic manufacturing plants or increase foreign direct investment (FDI). This approach necessitates a shift from fear-based negotiation tactics to strategically leveraging India's comparative advantages. Additionally, the CPTPP is free from the overwhelming influence of major powers such as China, the US and the EU.

Besides, India is now actively engaged in negotiations with the US and EU, and signed an agreement with the United Kingdom on 6 May 2025.  This marks the recognition that to achieve its ambition of becoming viksit (“developed”) by 2047, more engagement with the outside world is a sine qua non.  The developed dream will remain patently unrealized in the absence of enhanced global engagement and trade. That is why the FTA with UK, while positive, marks only the beginning of a long and hard negotiating period ahead.

India's participation in the Supply Chain Resilience Initiative (SCRI), launched with Japan and Australia in 2021, could be further strengthened by CPTPP membership. The CPTPP and other trade agreements can serve as a springboard for second and third-generation trade reforms, boost FDI, and enhance supply chain diversification and resilience.

III. What can India do?

Given the preceding discussion, what specific actions can India take to restore the credibility of the rules-based world trade order? For a start, India must adopt a proactive and positive role in engagements across regional, plurilateral, and bilateral platforms. The long-standing debate between regionalism and multilateralism takes on a significantly different context today. As noted by Bhagwati (1992), regional trading blocs can either act as building blocks for broader trade liberalization or become stumbling blocks by creating high external tariffs that harm multilateralism. In the current global environment, characterized by a stagnant WTO, regional blocs offer a pragmatic path for countries to liberalize and harmonize trade among partners, a simpler undertaking than pursuing global liberalization through the multilateral route at this time.

For India, the choice is clear: if it aspires to be an influential voice in global trade and advocate for weaker countries, it must first demonstrate its unwavering willingness to be open to trade. India’s ambitious goal of boosting exports to achieve a $2 trillion export target by 2030, with $1 trillion in manufactured goods, necessitates a decisive move away from isolationist policies. A protectionist agenda would significantly hinder India's long-term economic interests. Instead, India must foster genuine openness and actively reshape the perception that it is not a welcoming trade partner. This strategic shift would empower India to advocate for trade liberalization as the optimal path for the global trading system.

There are promising indicators of this new direction. India's active participation in supply chain initiatives such as the Indo-Pacific Economic Framework IPEF with the US and ASEAN, and the SCRI with Australia and Japan, demonstrate this commitment. Furthermore, recent FTAs with the UAE, Australia and UK underscore India's dedication to deeper global economic integration. To fully realize its potential in GVCs and achieve its ambitious international trade goals, India must engage more comprehensively than ever before, strategically increasing domestic value addition alongside greater trade volumes. To attain a share of world manufacturing output resembling its 1750 level of 24.5% (Kennedy, 1987), India must engage more, not less, in the global economy. Meanwhile, the undeniable rise of China has escalated tensions with the US across various domains. These trade tensions have persisted since at least 2018, characterized by the US imposing tariffs and other non-tariff barriers on China. Despite the trade frictions, China became the first country ever to achieve a trade surplus of over US$ 1 trillion in 2024 (Geng, 2025), underscoring the complexities of the current global trade landscape, characterised by deep interlinkages among nations.

China remains a critical trading partner for many countries worldwide. Concurrently, a global narrative of reshoring, friend-shoring, diversification, and a "China plus one" strategy has gained significant currency. Even so, China continues to exert an outsized influence on the global economy, accounting for 18 percent of global GDP and remaining the world’s largest trading economy. The notion of China being fully delinked from the global economy, if it ever happens, remains a long-term work in progress. Meanwhile, India is increasingly being projected as the next engine for global growth, with analysts predicting its likelihood of replacing China in this pivotal role (Li, 2025).

IV. What does this mean for India?

There is no doubt that a momentous opportunity awaits India. While it is impossible to reclaim its historical position in global trade, India can indeed play a meaningful and effective role in helping to resuscitate the rules-based world trading system. To achieve this, India must fully recognize its unique attributes: It is the fastest-growing among all major economies, possesses a large young demographic profile, and its deeply rooted democratic ethos, combined with its vast market, is increasingly viewed as a plausible alternative to China. This convergence of factors could finally launch India onto a sustained growth trajectory. However, this trajectory is not preordained. While the rest of the democratic world yearns for India to realize its vast potential, influenced by aging populations in major European and Asian economies and growing calls for diversification away from China, India is a reference point for keen investors. Yet, history warns that opportunities are not always seized. For example, India experienced remarkable economic growth between 2003-08, averaging 8.8 percent annually – over 30 aggregated percentage points faster than the next-best five-year period (1992-97, at 6.6% average growth). This era also powerfully vindicated the benefits of globalization in trade, technology, and capital flows (Shankar Acharya, 2008). Tragically, this opportunity was squandered by India's failure to push through much-needed domestic reforms.

The current opening has emerged, paradoxically, because the world is bracing for another round of protectionism and tariff hikes, potentially led by the US. For India, even before the rhetoric of Viksit Bharat (“Developed India”) gained public consciousness, the country had long recognized that the path to development necessitated engagement with the outside world. In theory, India’s approach to international engagement reflected the motto "no man is an island". In practice, however, India has experienced phases of self-imposed quarantine, akin to scoring an own goal.

While India has not entirely shed its inhibitions, it is now profoundly aware that its global economic and geopolitical ambitions cannot be attained by remaining isolated. With a per-capita annual income of around $3,000, roughly five times less than China’s, convergence in the medium to long term requires India to embrace globalization and openness, just as China did during its own period of rapid growth. It is unambiguously established that countries cannot be competitive by relying solely on domestic markets, however large they may be.

Upon assuming the G20 presidency in December 2022, India articulated an agenda that was inclusive, ambitious, action-oriented, and decisive. Crucially, multilateral reform was placed among India's top presidential priorities. Through its year-long presidency, India actively urged G20 member nations to rethink multilateralism, calling for reforms to global institutions to ensure wider representation of developing countries at decision-making tables. However, modifying the current axis of power embedded in multilateral institutions is undeniably challenging. India can play a vital role in reviving a rules-based trading order in the WTO by advocating for fair and inclusive reforms. With the stalling of the Doha Round, plurilateral agreements are emerging as alternatives, yet India has largely abstained from key negotiations on investment facilitation and e-commerce. While concerns over data sovereignty and the ongoing moratorium on customs duties complicate e-commerce negotiations, India should actively engage in these discussions to influence the rule-making process rather than being excluded. In other words, continuing to participated in negotiations is a far more productive approach than remaining on the periphery. This is even more desirable as India has embraced another significant responsibility: being a champion for developing countries. It must fulfil this commission through engagement, not staying on the sidelines.

India’s historically defensive approach to commitments in digital trade is seemingly based on short-term interests, but this stance may be evolving. India possesses well-known strengths in digital services, which are now an integral component of any manufacturing GVC. While India is a major exporter of digital skills and services and one of the fastest-growing markets globally for information and communications technology, some of its policies appear inimical to its own interests in integrating with GVCs and at odds with emerging global digital trade norms. India must acknowledge that customs duties are no longer a significant source of revenue and that the customs duty moratorium on digital trade could be leveraged as a crucial bargaining chip in multilateral negotiations. The moratorium on customs duties has underpinned digital trade since its inception; agreeing to its permanence could be strategically used by India to secure benefits in areas of its interest, such as agriculture. While India has undertaken obligations in bilateral digital trade agreements (e.g., with the UAE, Australia, and Singapore), it has, until now, largely avoided comprehensive obligations on issues such as cross-border data flows and data localization in multilateral and plurilateral platforms, perceiving risks to domestic sovereignty and seeking to preserve domestic policymaking space.

Although this cautious approach may have served India adequately in the past (though a detailed assessment on this account is lacking), it is unlikely to be sustainable or beneficial for the future. During its G20 presidency in 2023, India unequivocally emphasized the need for restoring a well-functioning, rules-based global trading order. This ambition is far better achieved by undertaking obligations that visibly reflect its own commitment to trade openness.

Furthermore, ongoing FTA negotiations with the EU and US will undoubtedly require specific commitments on digital trade. These cannot be avoided, especially given the EU's implementation of the General Data Protection Regulation, which governs the processing and transfer of personal data of individuals in the EU. A shift from a defensive to an offensive approach, aligning with India's comparative advantage in digital services, is therefore imperative. This shift will also facilitate better integration with GVCs, a long-standing ambition for India. By proactively committing to FTAs and a regional trade agreement such as the CPTPP, India would send a strong signal of its intent towards trade openness, significantly enhancing its standing as a champion for the Global South – a role it increasingly seeks to play after its successful G20 presidency. An integral part of India’s overarching goal is to secure fairer market access for itself and other developing nations, while effectively countering protectionist tendencies in developed economies. Food security, enhanced export opportunities, and strong support for S&DT are prime examples of issues India can strategically emphasize as part of its future negotiations.

As the world grapples with profound economic uncertainties, escalating geopolitical tensions, and the existential challenges of climate change, India’s leadership offers a vital roadmap for a more equitable and resilient global economy. Heightened protectionism, shifting geopolitical alliances, and trade tensions between the US and China have already fundamentally reshaped supply chains and compelled countries to reevaluate their positions in the global trade order. India, a rapidly growing emerging market set to be the world’s fourth-largest economy by the end of the year, possesses the unique ability to bridge the gap between advanced and emerging economies, playing a pivotal role in helping to restore the global trade order.