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Picture Courtesy: INDIAN EXPRESS
The line between economic and foreign policy has dissolved into geoeconomics, where nations employ economic tools for strategic, political, and national security ends.
The "New World Order" refers to the transition from a rules-based, globalized trading system (Globalization 1.0) to a fragmented, security-driven economic landscape (Globalization 2.0).
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Old Order (Globalization 1.0) |
New Order (Geoeconomics) |
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Primary Driver |
Economic Efficiency & Comparative Advantage |
National Security, Resilience & Strategic Dominance |
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Supply Chain Logic |
Just-in-Time: Focus on lowest cost and minimal inventory. |
Just-in-Case: Focus on reliability, trust, and diversification. |
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Nature of Interdependence |
Seen as a source of mutual prosperity and peace. |
Viewed as a vulnerability; often "weaponized" to coerce rivals. |
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Role of Government |
Market-led growth with minimal state intervention. |
Active state intervention through industrial policy and subsidies. |
The International Monetary Fund (IMF) warns that this increasing trade fragmentation could reduce global GDP by up to 7% over the long term, with developing economies being the most affected.
Nations are deploying a sophisticated toolkit of economic measures to pursue foreign policy goals.
"Friend-shoring" and Supply Chain Realignment
This involves shifting supply chains away from adversarial nations (like China) to politically and strategically aligned partners to mitigate geopolitical risks.
India's Role: The Supply Chain Resilience Initiative (SCRI), launched in 2021 by India, Japan, and Australia, is a geoeconomic strategy aimed at building resilient supply chains in the Indo-Pacific and reducing dependence on China.
Technology Denial and Export Controls
Restricting access to critical technologies has become a primary instrument of strategic competition, aimed at slowing down a rival's military and technological advancement.
Weaponization of Finance
Controlling access to the global financial system is a powerful coercive tool used to punish and isolate nations for actions deemed hostile.
Critical Minerals Diplomacy
The global green energy transition has triggered intense competition for critical minerals like lithium, cobalt, nickel, and rare earth elements (REEs). Securing access to these resources is now a key diplomatic objective.
Global Demand: The International Energy Agency (IEA) projects that demand for critical minerals will surge, with lithium demand to increase over 40 times by 2040 under a net-zero scenario.
India's Initiative: Khanij Bidesh India Ltd. (KABIL), an Indian joint venture for overseas mineral acquisition, signed an agreement to explore five lithium brine blocks in Argentina, showing a blend of resource policy and foreign diplomacy.
The "China Plus One" Advantage
India is emerging as a preferred alternative manufacturing hub as global firms "de-risk" from China. For example, India now produces 20% of Apple's global iPhone output, assembling $22 billion worth of iPhones in FY25. (Source: Bloomberg)
Production Linked Incentive (PLI) Schemes
The PLI scheme, with an outlay of ₹1.97 lakh crore across 14 sectors, is India's main geoeconomic tool. It acts as a strategic signal to attract global manufacturers seeking a reliable base.
FTAs as Strategic Alliances
India is using trade agreements to build strategic partnerships. The conclusion of the India-UAE CEPA and the recent India-EFTA TEPA (which includes a commitment of $100 billion in investment) demonstrate how trade pacts are now driven by strategic alignment and trust.
Digital Public Infrastructure (DPI) as Soft Power
India is leveraging "India Stack" (UPI, Aadhaar, etc.) as a diplomatic tool. The internationalization of UPI—with links in France, Singapore, UAE, Sri Lanka, and Mauritius—positions India as a leader in digital governance and builds goodwill in the Global South.
Green Protectionism
Developed nations, through measures like the EU’s Carbon Border Adjustment Mechanism (CBAM), are using environmental standards as non-tariff barriers. CBAM, which taxes carbon-intensive imports (steel, aluminum), is expected to impact $8-$10 billion of Indian exports yearly. (Source: GTRI Report)
Low R&D Expenditure
India's gross expenditure on R&D has remained stagnant at around 0.64% of its GDP, far below China (2.4%) and the US (3.5%). (Source: NITI Aayog)
Maintaining Strategic Autonomy
India's policy of multi-alignment, such as its continued engagement with Russia for discounted energy imports, requires diplomatic maneuvering to balance its relationships with competing power blocs like the West.
Institutional Integration
India needs a coordinated body, such as a National Economic Security Council, for seamless synergy among the Ministries of External Affairs, Commerce, Finance, and Defence to ensure a coherent geoeconomic strategy.
Deepen Domestic Reforms
To capitalize on "China+1," India must accelerate structural reforms in land acquisition, labor laws, and logistics infrastructure, as global capital seeks domestic strength and efficiency.
Invest in Future Technologies
A national mission approach is needed for critical technologies like semiconductors, AI, and green hydrogen. The Semicon India program, which aims to create a robust semiconductor ecosystem and train 85,000 skilled professionals, is a step in the right direction.
Advocating a Rules-Based Economic Order
To leverage geoeconomics effectively, India must simultaneously advocate a fair, inclusive, and development-focused global economic system to solidify leadership of the Global South and resist protectionism from developed nations.
India's goal of achieving a $5 trillion economy is not just an economic target, but a strong statement of its foreign policy, as a nation's economic strength is the core measure of its power and independence in the 21st century.
Source: INDIAN EXPRESS
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PRACTICE QUESTION Q. "In the current geopolitical landscape, economic policy has ceased to be merely about profit and has become a primary instrument of national security." Discuss |
Geopolitics focuses on the struggle for power over territory and borders using military and diplomatic means. Geoeconomics involves the use of economic instruments—such as trade policy, investment, and sanctions—to promote and defend national interests and produce beneficial geopolitical results.
Friend-shoring is a trade practice where supply chain networks are focused on countries regarded as political and economic allies. The goal is to reduce exposure to geopolitical rivals (like China) and ensure supply chain reliability ("Just-in-Case") rather than just cost efficiency ("Just-in-Time").
Khanij Bidesh India Ltd (KABIL) is a joint venture company set up to ensure a consistent supply of critical and strategic minerals to the Indian domestic market. It engages in "Critical Minerals Diplomacy" by acquiring mining assets in countries like Argentina and Australia to secure resources like Lithium, which are vital for green energy transitions.
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