Trade, supply chains and economic statecraft
A structural reset in the global trading order — driven by supply chain fragmentation, the retreat from hyper-globalisation, and the rise of geopolitical bloc formation — is creating both risks and unprecedented strategic opportunities for India.
Analysts argue that India must adopt a posture of "policy promiscuity" — engaging simultaneously with multiple competing blocs (the US, the EU, the Gulf, ASEAN, and others) rather than aligning exclusively with any single power.
The global tariff shock initiated by the US in 2025-26 has demonstrated that market access can be weaponised, supply chain participation is conditional, and technology cooperation cannot be insulated from trade volatility.
India's trade agreement coverage is projected to rise from 22% of its export basket in 2019 to approximately 71% by 2026, reflecting a deliberate shift toward using trade agreements as instruments of strategic positioning.
Economic Statecraft: Concept and Instruments
Economic statecraft refers to the use of economic instruments — trade, investment, sanctions, aid, technology access, and supply chain leverage — to achieve foreign policy objectives. It sits at the intersection of economics and geopolitics.
Key Details
- Instruments of economic statecraft include: (i) trade agreements (FTAs, CEPAs) used to cement strategic partnerships; (ii) sanctions and export controls as coercive tools; (iii) investment screening to protect strategic sectors; (iv) supply chain diversification as a defensive measure; and (v) development finance (e.g., AIIB, India's credit lines) as a tool of regional influence.
- The post-2020 global environment has accelerated the weaponisation of economic interdependence — the US-China technology war, Western sanctions on Russia, and broad tariff escalation under US trade policy are examples.
- India's "strategic autonomy" doctrine requires it to benefit from engagement with multiple power centres without becoming economically captive to any one.
The argument for "policy promiscuity" is essentially an argument for maximising economic statecraft options — being willing to sign deals with the US, EU, UK, UAE, and the Gulf simultaneously, using each as a hedge against over-dependence.
Supply Chain Diversification and the China+1 Strategy
The China+1 strategy refers to the practice of multinational corporations diversifying manufacturing bases beyond China to reduce concentration risk, accelerated by the COVID-19 pandemic, US-China tensions, and geopolitical uncertainty.
Key Details
- India is a primary beneficiary candidate for China+1, given its large labour force, domestic market, and improving infrastructure. Competing destinations include Vietnam, Bangladesh, Mexico, and Indonesia.
- Government instruments to attract supply chain relocation include: (i) PLI (Production Linked Incentive) schemes across 14 sectors launched from 2020-21; (ii) dedicated industrial corridors (Delhi-Mumbai, Chennai-Bengaluru); (iii) Semicon India Programme for semiconductors; and (iv) FDI liberalisation in defence, insurance, and retail.
- India's electronics exports have scaled rapidly under PLI — Apple's iPhone assembly in India (through Foxconn and Tata) is a flagship example.
- Nodal ministry for PLI varies by sector: Ministry of Commerce (food processing), Ministry of Electronics and IT (electronics), Ministry of Pharmaceuticals (pharma and medical devices), etc.
Supply chain integration requires trade agreement coverage; without FTAs reducing input tariffs and providing market access guarantees, India risks being bypassed for competing export hubs with better preferential access to major markets.
Hyper-Globalisation to Geo-Economic Fragmentation
Hyper-globalisation — the era of deep trade integration, just-in-time global supply chains, and tariff minimisation from roughly 1990 to 2015 — is giving way to geo-economic fragmentation: the reorganisation of trade and investment flows along geopolitical lines.
Key Details
- The IMF and World Bank estimate that full geo-economic fragmentation could reduce global GDP by 2.5% to 7% in the long run, with emerging markets facing disproportionate costs.
- Friendshoring (routing supply chains through geopolitically aligned partners) and nearshoring (moving production closer to consuming markets) are reshaping global manufacturing geographies.
- India's position as a large, non-aligned democracy with strategic ambiguity — credible to both Western and Global South partners — is its core comparative advantage in this environment.
- The India-Middle East-Europe Economic Corridor (IMEC), announced in September 2023 at the G20, is India's bid to position itself as a logistics and trade hub in this re-routed global order.
India's simultaneous conclusion of trade deals with the UK (CETA, 2025), the EU (FTA, January 2026), and the US (interim deal, February 2026) reflects a deliberate strategy to be embedded in multiple trade blocs before geo-economic fragmentation hardens into rigid blocs.
India's Trade Agreement Architecture
India's FTA strategy has historically been cautious — it chose not to join the Regional Comprehensive Economic Partnership (RCEP) in 2019 citing concerns about Chinese goods flooding the domestic market.
Key Details
- Active FTAs: ASEAN (goods 2009, services 2012), South Korea (2010), Japan (2011), UAE (2022), Australia (ECTA, 2022), UK (CETA signed 2025), EU (announced January 2026).
- India withdrew from RCEP in November 2019; the agreement covers 15 Asia-Pacific nations and approximately 30% of global GDP.
- The WTO Dispute Settlement Mechanism remains the multilateral backstop; India has been both a complainant and respondent in multiple disputes (e.g., US steel tariffs, EU aircraft subsidies context).
- India's current account deficit and exchange rate management are also instruments of trade competitiveness alongside formal FTAs.
The "policy promiscuity" argument directly challenges India's historically selective FTA approach, advocating for a more expansive engagement as the window for optimal positioning is time-limited.
- India's FTA coverage: from 22% of export basket (2019) to projected 71% by 2026.
- India opted out of RCEP in November 2019 (15-nation Asia-Pacific trade bloc, ~30% of global GDP).
- PLI scheme: launched 2020-21, covers 14 sectors, total outlay approximately ₹1.97 lakh crore.
- India-EU FTA announced January 2026, described as covering 97% of EU tariff lines for 99.5% of India's exports by value.
- IMEC (India-Middle East-Europe Economic Corridor) announced at G20 New Delhi Summit, September 2023.
- IMF estimate: full geo-economic fragmentation could reduce global GDP by 2.5% to 7%.
- India's goods export target: $1 trillion by 2026-27.
- Strategic autonomy is India's stated foreign policy doctrine — maintaining decision-making independence across great power competition.