India is the world’s fifth-largest economy, yet it remains deeply integrated with global trade, capital flows, energy markets and supply chains. In the post-pandemic era, rising protectionism, geopolitical conflicts and geo-economic fragmentation have reshaped the global economic order.
Key challenges facing the Indian economy amid global headwinds:
1. Adverse Global Trade Environment:
- Rising protectionism and tariff escalation have constrained market access. India’s export growth fell to 3.9% in Q4 FY24 from 7.4% in the previous quarter.
- Reports of steep tariff threats by the US and debates over EU’s CBAM raise costs for Indian exporters in textiles, steel and engineering goods.
2. Commodity Price Shocks: Global energy and food price volatility has intensified inflationary pressures.
- Imported inflation surged from 1.3% in June 2024 to 31.1% in Feb 2025, driven by oils, metals and fertilisers.
- With India importing nearly 80% of its crude oil, external shocks directly affect inflation and fiscal balance.
3. Supply Chain Disruptions: Geopolitical conflicts have disrupted major shipping routes. Red Sea disruptions increased freight costs and delivery delays, raising input costs for Indian manufacturers.
4. Currency Pressure: Tight global monetary conditions have impacted capital flows. The rupee depreciated to a record ₹88.36 per US dollar, increasing external debt servicing costs and import bills.
5. Declining FDI Inflows: Global uncertainty has dampened investment sentiment. Net FDI inflows dropped sharply to $35 million in May 2025, from $2.2 billion a year earlier, constraining infrastructure and manufacturing expansion.
Opportunities from Geo-economic disruptions:
1. Supply-Chain Diversification (China+1): Global firms are seeking alternatives to single-country dependence. Electronics and semiconductor investments under Make in India and PLI position India as a viable manufacturing hub.
2. Digital Economy Leadership:
- India’s IT-BPM sector is projected to reach USD 350 billion by 2026, contributing nearly 10% of GDP.
- Platforms like UPI and Aadhaar are emerging as global digital public infrastructure models.
3. Energy Transition Advantage:
- India’s installed renewable capacity reached 220 GW by March 2025.
- Green hydrogen and battery storage offer export opportunities in a low-carbon global economy.
4. Defence self-reliance: Defence exports grew 34-fold between FY14 and FY25, reflecting rising global trust.
5. Semiconductor Manufacturing: Under SEMICON India, ₹76,000 crore has been committed to building a domestic chip ecosystem.
Measures to enhance India’s economic resilience:
1. Diversified Trade Architecture: Reduce overdependence on the US and EU by expanding trade with Africa, Latin America and ASEAN, supported by FTAs like India–UAE CEPA.
2. Strengthening Domestic Manufacturing: Deepen local value addition in electronics, APIs and energy equipment through PLI and Atmanirbhar Bharat, reducing import vulnerability.
3. Energy and Food Security: Accelerate renewable energy deployment, expand strategic oil reserves and modernise agri-logistics to cushion external shocks.
4. Technological Sovereignty: Build indigenous capacity in AI, semiconductors, 5G/6G and cybersecurity, reducing dependence on geopolitically sensitive technologies.
5. Rupee Internationalisation: Promote rupee-denominated trade settlements such as in energy imports, to reduce dollar dependence and enhance monetary autonomy.
Conclusion:
The challenge is not merely to withstand these headwinds, but to convert disruption into strategic advantage. In doing so, India can evolve from a rule-taker to a rule-shaper in the emerging geo-economic order.
‘+1’ Value-Addition:
- 33% of India’s merchandise exports go to the US and EU, increasing exposure to protectionist shocks.
- Red Sea disruptions pushed Asia–Europe freight rates up 2–3× in 2025, raising costs for Indian exporters.
- India imports 80% of crude oil. Every $10 rise in oil prices widens the CAD by 0.3% of GDP.
- FPI outflows of around ₹1.7 lakh crore during global risk-off phases underline financial exposure.
- Apple/Foxconn/Pegatron’s expansion in India shows re-routing of global manufacturing from China.
La Excellence IAS Academy, the best IAS coaching in Hyderabad, known for delivering quality content and conceptual clarity for UPSC 2026 preparation.
FOLLOW US ON:
◉ YouTube : https://www.youtube.com/@CivilsPrepTeam
◉ Facebook: https://www.facebook.com/LaExcellenceIAS
◉ Instagram: https://www.instagram.com/laexcellenceiasacademy/
GET IN TOUCH:
Contact us at info@laex.in, https://laex.in/contact-us/
or Call us @ +91 9052 29 2929, +91 9052 99 2929, +91 9154 24 2140
OUR BRANCHES:
Head Office: H No: 1-10-225A, Beside AEVA Fertility Center, Ashok Nagar Extension, VV Giri Nagar, Ashok Nagar, Hyderabad, 500020
Madhapur: Flat no: 301, survey no 58-60, Guttala begumpet Madhapur metro pillar: 1524, Rangareddy Hyderabad, Telangana 500081
Bangalore: Plot No: 99, 2nd floor, 80 Feet Road, Beside Poorvika Mobiles, Chandra Layout, Attiguppe, Near Vijaya Nagara, Bengaluru, 560040