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India’s Economic Reforms and International Relations

India’s Economic Reforms and International Relations

By Dr. A. R. Khan

In my recent vlog “India: Dead or Dreaded Economy” on the KSG India YouTube channel, I argued that India’s economy is not to be judged by temporary slowdowns but by its structural strengths and global engagements.

India’s economic destiny has always been shaped by how it trades and negotiates with the world. From the dockyards of Lothal in the Indus Valley to the corridors of the World Trade Organization (WTO) and G20 summits, India’s story has been one of resilience, adaptation, and aspiration.


The roots of India’s trade diplomacy stretch deep into history. Archaeological remains from the Indus Valley Civilization reveal maritime trade with Mesopotamia as early as 2500 BCE. The Mauryan Empire, particularly under Ashoka, blended commerce with cultural diplomacy—Buddhist monks accompanied traders to Southeast Asia and Central Asia. The Gupta era enriched Indo-Roman trade with silk, spices, and ivory, while the Cholas turned the Bay of Bengal into an arena of maritime influence. Ancient India was, in effect, an early practitioner of “soft power projection”—building influence not through military might but through trade networks, cultural exports, and people-to-people ties.
Colonial encounters reversed this dynamic. India, once a leading exporter of textiles and spices, became a captive market for British manufactured goods. Deindustrialization, a skewed balance of trade, and the infamous “drain of wealth” transformed commerce into an instrument of exploitation. When India became independent in 1947, it inherited not only a fragile economy but also the awareness that trade must be wielded as a sovereign tool of statecraft.


In the early decades, India pursued strategic autonomy through the Non-Aligned Movement (NAM). The Cold War demanded deft navigation. India maintained commercial and defense ties with the Soviet Union while also engaging Western economies. This pursuit of “multi-alignment” was evident even then, though the term gained currency only in the 21st century. However, asserting sovereignty invited sanctions. The 1974 Pokhran nuclear test triggered a technology denial regime, and the 1998 Pokhran-II tests led to sweeping U.S. and European sanctions. India responded with technology indigenization, South–South cooperation, and diversification of partners. Ironically, those sanctions paved the way for stronger domestic capacities and, within a decade, the landmark Indo–U.S. Civil Nuclear Deal of 2008. This was a triumph of “sanctions diplomacy” turned into “strategic partnership.”


Today, India is the fifth-largest economy (IMF, 2024 GDP ~$4.1 trillion nominal, ~$13 trillion PPP) and the second-fastest growing G20 economy (6.6% projected growth in FY 2025). Trade is central to this rise. In 2023–24, India’s merchandise exports stood at $437 billion, while services exports crossed $340 billion, driven by IT, fintech, and digital platforms. Despite global headwinds, India maintained a robust export basket—from refined petroleum and pharmaceuticals to software and agricultural products.


On the diplomatic front, India is a rule-shaper rather than a rule-taker. At the WTO, India has consistently pushed for equity in global trade negotiations, especially on agricultural subsidies and intellectual property rights (TRIPS flexibilities during COVID-19). During its G20 Presidency in 2023, India foregrounded “supply chain resilience, green energy transitions, and digital public infrastructure” as global priorities, earning recognition as a bridge between developed and developing economies. Its leadership in BRICS expansion and active role in the Shanghai Cooperation Organisation (SCO) illustrate India’s commitment to a multipolar world order.


Energy diplomacy has become the cornerstone of India’s foreign economic policy. India imports over 85% of its crude oil requirements. After the Russia–Ukraine war, India diversified its energy basket by increasing discounted Russian crude imports, despite Western discomfort. At the same time, India has deepened ties with traditional Gulf suppliers like Saudi Arabia and the UAE, and is investing in long-term LNG contracts with Qatar. Parallelly, India is leading the International Solar Alliance (ISA), with more than 110 member countries, positioning itself as a norm entrepreneur in global climate and energy governance. Ambitious domestic targets—500 GW of renewable energy capacity by 2030 and net zero by 2070—reinforce this credibility.


Diversification is no longer just geographical but also sectoral. Africa has emerged as a partner in pharmaceuticals and IT-enabled services, Latin America in agri-trade and energy, and Central Asia through the International North-South Transport Corridor and Chabahar port linkages. Domestically, the Production-Linked Incentive (PLI) schemes are catalyzing new export sectors like electronics, semiconductors, and defense equipment. In the digital space, India is pushing a data sovereignty narrative and shaping “digital trade rules” in forums like the Indo-Pacific Economic Framework (IPEF). Such moves ensure that India’s rise is not confined to traditional goods but extends into the knowledge and technology economy.


Opportunities abound. The “China+1” strategy, adopted by global corporations seeking to reduce dependence on China, provides India a rare chance to attract manufacturing investments. The blue economy, spanning fisheries, shipping, and offshore renewable energy, is estimated to contribute over 4% to India’s GDP by 2030 if harnessed effectively. Similarly, India’s demographic dividend, coupled with a digital-ready workforce, positions it as a hub for global services trade.


Challenges remain. Western protectionism, climate-linked tariffs (like the EU’s Carbon Border Adjustment Mechanism), and geopolitical tensions in the Indo-Pacific will test India’s flexibility. But history shows that India thrives under constraints. Where sanctions once spurred technological self-reliance, today’s pressures are driving India to innovate in renewable energy, defense manufacturing, and digital governance.


Thus, India’s trade and diplomacy today are not about survival but about shaping the rules of the game. The ethos of Atmanirbhar Bharat ensures self-reliance without isolation, while the philosophy of Vasudhaiva Kutumbakam ensures inclusivity without subservience. If ancient ports sent spices and textiles across oceans, today’s India is exporting software, solar technology, and democratic values. If once India endured sanctions, today it forges coalitions and leads conversations on fairer trade.


Looking ahead, the optimism lies in knowing that India is not a peripheral player but a central architect of tomorrow’s trade order. With its blend of civilizational wisdom, youthful energy, and strategic autonomy, India is poised to transform challenges into opportunities. It will not only secure its place as a leading economic power but also inspire the world by showing that prosperity and principles can advance together.
India’s economy, therefore, is not “dead” or merely “dreaded.” It is determined, dynamic, and destined to shape the future of global trade.

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