Economic Survey: Time to reinforce internal growth engines as global trade barriers surge

Many countries now operate in an environment markedly different from what they were accustomed to, with traditional rules being reconsidered and uncertainty surrounding what might replace them.
Economic Survey: Time to reinforce internal growth engines as global trade barriers surge
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Stating that the time has come to reinvigorate our internal engines and domestic levers for sustained growth as external conditions have turned unconducive, the Economic Survey that was tabled in the Parliament on Friday said worldwide there is a “backsliding of economic integration with geo-economic fragmentation replacing globalisation with trade curbs soaring manifold.

“The global economy is at a significant juncture where long-held principles and practices are being re-evaluated and in some cases, losing their relevance. As a result, many countries now operate in an environment markedly different from what they were accustomed to, with traditional rules being reconsidered and uncertainty surrounding what might replace them.

“Given this new and emerging global reality, the way forward for us is to reinvigorate the internal engines and domestic levers of growth and focusing on a central element, the economic freedom of individuals and organisations to pursue legitimate economic activity through systematic deregulation,” says the economic survey.

According to the Survey prepared by the Chief Economic Advisor V Anantha Nageswaran, ‘geo-economic fragmentation' is a policy-driven reversal of global economic integration often guided by strategic considerations. This process encompasses different channels, including trade, capital, and migration flows.

According to the WTO data, there is a sharp rise in the coverage of trade-restrictive measures by WTO-members between mid-October 2023 and mid-October 2024, compared to the last trade monitoring report in November 2023. The value of trade covered by the 169 new trade-restrictive measures introduced between October 2023 and October 2024 is $887.7 billion, which is half a trillion dollars more than the value of trade covered by restrictions introduced in the preceding year, which stood at $337.1 billion, the Survey said reeling out numbers.

This shows that there are fundamental shifts underway in global economic engagement with the proliferation of trade and investment restrictions. Between 2020 and 2024, over 24,000 new restrictions related to trade and investments have gone into place globally. The impact of this shift in global structural forces is reflected in global trade growth, which has slowed down significantly, and signs of secular stagnation in the global economy are beginning to emerge, the survey notes.

According to the International Monetary Fund, trade fragmentation is much more costly because, unlike at the start of the Cold War when goods trade to GDP was 16%, the ratio is 45% now. Less trade implies less knowledge diffusion, which could also be reduced by fragmentation of cross-border direct investments.

In a re-enactment of the Cold War era, countries are once again getting grouped into two blocs and phrases like ‘friend-shoring’ have come to play centre-stage in global policymaking. Tensions over trade, technology standards, and security have been growing for many years, undermining growth and trust in the current global economic system. Therefore, fragmentation, economic, social and cultural, is a direct consequence of the imposition of a 'one-size-fits-all' emission, as well as social and labour standards by Western nations. These developments have growth implications for all, including us,” says the survey.

On the impact of the geo-economic fragmentation on global FDI flows, which are increasingly getting concentrated among geopolitically aligned countries, the survey said such reallocation of FDI increases the vulnerability of several emerging markets and developing economies. The output losses associated with this FDI relocation emerging from friend-shoring and re-shoring are especially severe.

Stating that China has emerged as a dominant force not only in global manufacturing and energy transition ecosystems, it has also gained strategic advantages leveraging its competitiveness and economic policy to access and control key resources recognised today as critical for global supply chains, the Survey quoting Unido said China will account for 45% of all global manufacturing, outmatching the US and its allies.

Pointing to the dominance of China in energy transition technologies, it said China supplies more than 80% of solar panels, and also houses nearly 80% of the world's battery manufacturing capacity and supplies 60% of the global wind mills.  

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