Medium Term Outlook: Deregulation Drives Growth | Economic Survey & Government Reports - UPSC PDF Download

 Page 3


Medium Term Outlook
135
GDP at constant prices at around 6.5 per cent between FY26 and FY30. This chapter 
explores the policy action agenda to help us achieve or exceed these growth rates.
5.5 It begins by sketching out the global economic and political environment. The 
first section delves into the reality of geo-economic fragmentation and examines its 
implications for global growth. The second section outlines the case for acknowledging 
the elephant [and the dragon] in the room that will have a bearing on the growth 
projections – fundamental shifts in the global economic order combined with 
China's manufacturing prowess and strategic dominance. The third section probes 
into a key channel of the slightly less acknowledged but critical aspect of China's 
dominance, viz., dependency of the global economy on it for energy transition efforts. 
India has ambitious goals for energy transition despite being one of the lowest per 
capita emitters of greenhouse gases. Dependence on China-made goods to achieve 
that transition enhances the complexity of the challenge for India. The fourth section 
sheds light on the need to focus on domestic growth levers for India, given the global 
context and challenges outlined. It makes a case for trusting the ingenuity of people 
and organisations and using policy to enhance their economic freedoms, which will 
give impetus to growth in line with the projections of WEO. The last section takes a 
deep dive into specific aspects of systematic deregulation that need to be focussed on 
to facilitate economic freedom for individuals and businesses so that India's medium-
term growth prospects remain strong.
GEO-ECONOMIC FRAGMENTATION – THIS TIME MAY BE 
DIFFERENT
5.6 In one of his seminal pieces, 'The Economic Consequences of Peace', John 
Maynard Keynes writes about early twentieth-century London, 'the inhabitant 
of London could order by telephone, sipping his morning tea in bed, the various 
products of the whole earth, in such quantity as he might see fit, and reasonably 
expect their early delivery upon his doorstep; he could at the same moment and by 
the same means adventure his wealth in the natural resources and new enterprises 
of any quarter of the world, and share, without exertion or even trouble, in their 
prospective fruits and advantages'. 
57 Keynes was describing a state of affairs not unlike the one to which we have 
become accustomed over the past few decades of hyper-globalisation, wherein the 
flows of capital, goods, services, and people have transformed our world, helped by 
the spread of new technologies and ideas. These forces of integration have boosted 
productivity and living standards, tripling the size of the global economy and lifting 
1.3 billion people out of extreme poverty. 
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Medium Term Outlook
135
GDP at constant prices at around 6.5 per cent between FY26 and FY30. This chapter 
explores the policy action agenda to help us achieve or exceed these growth rates.
5.5 It begins by sketching out the global economic and political environment. The 
first section delves into the reality of geo-economic fragmentation and examines its 
implications for global growth. The second section outlines the case for acknowledging 
the elephant [and the dragon] in the room that will have a bearing on the growth 
projections – fundamental shifts in the global economic order combined with 
China's manufacturing prowess and strategic dominance. The third section probes 
into a key channel of the slightly less acknowledged but critical aspect of China's 
dominance, viz., dependency of the global economy on it for energy transition efforts. 
India has ambitious goals for energy transition despite being one of the lowest per 
capita emitters of greenhouse gases. Dependence on China-made goods to achieve 
that transition enhances the complexity of the challenge for India. The fourth section 
sheds light on the need to focus on domestic growth levers for India, given the global 
context and challenges outlined. It makes a case for trusting the ingenuity of people 
and organisations and using policy to enhance their economic freedoms, which will 
give impetus to growth in line with the projections of WEO. The last section takes a 
deep dive into specific aspects of systematic deregulation that need to be focussed on 
to facilitate economic freedom for individuals and businesses so that India's medium-
term growth prospects remain strong.
GEO-ECONOMIC FRAGMENTATION – THIS TIME MAY BE 
DIFFERENT
5.6 In one of his seminal pieces, 'The Economic Consequences of Peace', John 
Maynard Keynes writes about early twentieth-century London, 'the inhabitant 
of London could order by telephone, sipping his morning tea in bed, the various 
products of the whole earth, in such quantity as he might see fit, and reasonably 
expect their early delivery upon his doorstep; he could at the same moment and by 
the same means adventure his wealth in the natural resources and new enterprises 
of any quarter of the world, and share, without exertion or even trouble, in their 
prospective fruits and advantages'. 
57 Keynes was describing a state of affairs not unlike the one to which we have 
become accustomed over the past few decades of hyper-globalisation, wherein the 
flows of capital, goods, services, and people have transformed our world, helped by 
the spread of new technologies and ideas. These forces of integration have boosted 
productivity and living standards, tripling the size of the global economy and lifting 
1.3 billion people out of extreme poverty. 
Economic Survey 2024-25
136
5.8 However, just like Keynes' description of how the prosperity of Londoner was 
destroyed by 'the projects and politics of militarism and imperialism, of racial 
and cultural rivalries, of monopolies, restrictions, and exclusion', we can draw 
uncomfortable parallels with the present-day era wherein the global economy is once 
again confronted with the challenge of geo-economic fragmentation (GEF). This time, 
it is of a scale, scope and complexity that is likely more severe in its impact than what 
the world witnessed in the early 20th century. 
5.9 The decades since the 1980s have witnessed significant globalisation, marked by 
remarkable shifts in global trade, investment, and economic activity. Here are some key 
statistics:
Global trade growth: In 1980, global trade accounted for about 39 per cent of world 
GDP. By 2012, this share had risen to 60 per cent, reflecting the deep integration of 
global markets.
Foreign direct investment (FDI): Global FDI inflows grew from USD 54 billion in 
1980 to over USD 1.5 trillion in 2019, showcasing the increasing role of multinational 
corporations in cross-border investments.
Economic growth and poverty reduction: The global economy grew from USD 11 
trillion in 1980 to over USD 100 trillion in 2022 (nominal).
Extreme poverty rates (those living on less than USD 2.15 a day) fell from 42 per cent of 
the global population in 1981 to 8.4 per cent in 2019, driven by rapid economic growth 
in countries like China and India.
Global population and urbanisation:
The global population grew from 4.4 billion in 1980 to 8 billion in 2022, with urbanisation 
rates rising from 39 per cent in 1980 to 57 per cent in 2022, fuelling economic activity 
and connectivity.
Internet penetration: In 1980, internet connectivity was virtually non-existent. By 
2022, over 5.3 billion people, or 66 per cent of the global population, had access to the 
internet, revolutionising communication, trade, and innovation.
These statistics illustrate the profound changes globalisation has brought, driving 
economic integration and altering the global economic landscape. But, the next two 
decades are more likely to be about economic fragmentation.
5.10  Aiyar et al. (2023)
3
 define 'geo-economic fragmentation' as a policy-driven 
reversal of global economic integration often guided by strategic considerations. 
This process encompasses different channels, including trade, capital, and migration 
3  Aiyar, S, J Chen, C Ebeke, R Garcia-Saltos, T Gudmundsson, A Ilyina, A Kangur, S Rodriguez, M Ruta, T Schulze, J 
Trevino, T Kunaratskul and G Soderberg (2023), “Geoeconomic Fragmentation and the Future of Multilateralism”, 
IMF Staff Discussion Note SDN/2023/01, https://tinyurl.com/ym4jdfy8. 
Page 5


Medium Term Outlook
135
GDP at constant prices at around 6.5 per cent between FY26 and FY30. This chapter 
explores the policy action agenda to help us achieve or exceed these growth rates.
5.5 It begins by sketching out the global economic and political environment. The 
first section delves into the reality of geo-economic fragmentation and examines its 
implications for global growth. The second section outlines the case for acknowledging 
the elephant [and the dragon] in the room that will have a bearing on the growth 
projections – fundamental shifts in the global economic order combined with 
China's manufacturing prowess and strategic dominance. The third section probes 
into a key channel of the slightly less acknowledged but critical aspect of China's 
dominance, viz., dependency of the global economy on it for energy transition efforts. 
India has ambitious goals for energy transition despite being one of the lowest per 
capita emitters of greenhouse gases. Dependence on China-made goods to achieve 
that transition enhances the complexity of the challenge for India. The fourth section 
sheds light on the need to focus on domestic growth levers for India, given the global 
context and challenges outlined. It makes a case for trusting the ingenuity of people 
and organisations and using policy to enhance their economic freedoms, which will 
give impetus to growth in line with the projections of WEO. The last section takes a 
deep dive into specific aspects of systematic deregulation that need to be focussed on 
to facilitate economic freedom for individuals and businesses so that India's medium-
term growth prospects remain strong.
GEO-ECONOMIC FRAGMENTATION – THIS TIME MAY BE 
DIFFERENT
5.6 In one of his seminal pieces, 'The Economic Consequences of Peace', John 
Maynard Keynes writes about early twentieth-century London, 'the inhabitant 
of London could order by telephone, sipping his morning tea in bed, the various 
products of the whole earth, in such quantity as he might see fit, and reasonably 
expect their early delivery upon his doorstep; he could at the same moment and by 
the same means adventure his wealth in the natural resources and new enterprises 
of any quarter of the world, and share, without exertion or even trouble, in their 
prospective fruits and advantages'. 
57 Keynes was describing a state of affairs not unlike the one to which we have 
become accustomed over the past few decades of hyper-globalisation, wherein the 
flows of capital, goods, services, and people have transformed our world, helped by 
the spread of new technologies and ideas. These forces of integration have boosted 
productivity and living standards, tripling the size of the global economy and lifting 
1.3 billion people out of extreme poverty. 
Economic Survey 2024-25
136
5.8 However, just like Keynes' description of how the prosperity of Londoner was 
destroyed by 'the projects and politics of militarism and imperialism, of racial 
and cultural rivalries, of monopolies, restrictions, and exclusion', we can draw 
uncomfortable parallels with the present-day era wherein the global economy is once 
again confronted with the challenge of geo-economic fragmentation (GEF). This time, 
it is of a scale, scope and complexity that is likely more severe in its impact than what 
the world witnessed in the early 20th century. 
5.9 The decades since the 1980s have witnessed significant globalisation, marked by 
remarkable shifts in global trade, investment, and economic activity. Here are some key 
statistics:
Global trade growth: In 1980, global trade accounted for about 39 per cent of world 
GDP. By 2012, this share had risen to 60 per cent, reflecting the deep integration of 
global markets.
Foreign direct investment (FDI): Global FDI inflows grew from USD 54 billion in 
1980 to over USD 1.5 trillion in 2019, showcasing the increasing role of multinational 
corporations in cross-border investments.
Economic growth and poverty reduction: The global economy grew from USD 11 
trillion in 1980 to over USD 100 trillion in 2022 (nominal).
Extreme poverty rates (those living on less than USD 2.15 a day) fell from 42 per cent of 
the global population in 1981 to 8.4 per cent in 2019, driven by rapid economic growth 
in countries like China and India.
Global population and urbanisation:
The global population grew from 4.4 billion in 1980 to 8 billion in 2022, with urbanisation 
rates rising from 39 per cent in 1980 to 57 per cent in 2022, fuelling economic activity 
and connectivity.
Internet penetration: In 1980, internet connectivity was virtually non-existent. By 
2022, over 5.3 billion people, or 66 per cent of the global population, had access to the 
internet, revolutionising communication, trade, and innovation.
These statistics illustrate the profound changes globalisation has brought, driving 
economic integration and altering the global economic landscape. But, the next two 
decades are more likely to be about economic fragmentation.
5.10  Aiyar et al. (2023)
3
 define 'geo-economic fragmentation' as a policy-driven 
reversal of global economic integration often guided by strategic considerations. 
This process encompasses different channels, including trade, capital, and migration 
3  Aiyar, S, J Chen, C Ebeke, R Garcia-Saltos, T Gudmundsson, A Ilyina, A Kangur, S Rodriguez, M Ruta, T Schulze, J 
Trevino, T Kunaratskul and G Soderberg (2023), “Geoeconomic Fragmentation and the Future of Multilateralism”, 
IMF Staff Discussion Note SDN/2023/01, https://tinyurl.com/ym4jdfy8. 
Medium Term Outlook
137
flows.
4
 Despite the benefits of integration, hyper-globalisation has also brought about 
associated complacencies. People have been left behind as industries have changed 
amid global competition. Rising geopolitical tensions and the breakout of war have 
further intensified these underlying fissures in the global economy. 
5.11 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.
Growth implications of geo-economic fragmentation 
5.12  The consequences and costs of GEF are propagated via all the channels whereby 
countries engage with each other economically. Trade is the main channel through which 
fragmentation is reshaping the global economy. The capacity of trade to incentivise 
within-industry reallocation and generate productivity gains is getting increasingly 
stifled. This is most evident in the increase in the trade-restrictive measures imposed 
by countries. As per figures released by the World Trade Organization (WTO) as part 
of the WTO Director-General's annual overview of global trade developments, 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 [Chart V.2].  
5.13  As per estimates, the value of trade covered by the 169 new trade-restrictive 
measures introduced between October 2023 and October 2024 is USD 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 USD 337.1 billion.
5
 IMF
6
 observes 
that trade fragmentation is much more costly this time because, unlike the start of the 
cold war when goods trade to GDP was 16 per cent, now that ratio is 45 per cent. Less 
trade implies less knowledge diffusion, a key benefit of integration, which could also be 
reduced by fragmentation of cross-border direct investment. One way to visualise trade 
restrictiveness is to quantify the trade coverage of new import-restrictive measures, 
apart from the number of restrictive measures presented earlier (Chart V.2)
7
.
4  Ibid Note 3.
5  World Trade Organisation Annual Report by the Director General, 2024, https://tinyurl.com/5n6k4wb4.
6 ‘Geopolitics and its Impact on Global Trade and the Dollar’, Talk delivered by Gita Gopinath (IMF FDMD) in 
the Series on the Future of the International Monetary System (IMS) at Stanford Institute for Economic Policy 
Research, May 7, 2024, https://tinyurl.com/2ma3wkjw.
7  Ibid Note 5.