In a fragmenting global economy, India’s challenge is often described as one of de-globalisation. Yet this diagnosis misses the core issue. The problem is not that India is integrating more or less with the world, but that its integration has historically been shallow, limiting its abilities to translate global engagement into sustained industrial and productivity gains.
India’s Experience: The Cost of Shallow Integration
Premature exposure to global competition without building domestic industrial depth can lock countries into stagnant industrialisation. Over the past three decades, India has expanded its presence in global markets without a corresponding build-up of domestic industrial capabilities. The result is a pattern of globalisation without structural transformation – reflected in a manufacturing share stuck at 15–17 percent of GDP, far below the 25-30 percent typical of East Asian industrialisers. This reflects what economists term “Premature De-industrialisation”, where economies enter global markets before building the productivity base required for competitive manufacturing. Without a shift in policy priorities, the pattern risks intensifying under new global conditions.
After liberalisation in 1991, India relied heavily on global demand and fragmented supply chains, but without embedding itself deeply in these levers. Its share in global manufacturing exports has remained low, at around 1.8 percent as of 2024, compared to China’s 14 percent, indicating limited participation in global supply-chain networks. This is best understood as “shallow integration,” where expanded access to global markets does not translate into the domestic capabilities required for sustained industrial growth.
The consequence is a premature structural transformation where labour and production move out of agriculture but do not enter high-productivity industry at scale, instead shifting into low-productivity services. This reflects a failure of industrial absorption, where manufacturing does not expand sufficiently to anchor productivity gains.
The Global Shift: From Efficiency to Strategic Resilience
The global environment that once enabled shallow integration is itself changing. Earlier, global production systems allowed countries to participate in segmented value chains without building full-fledged domestic capabilities. Efficiency and scale were the primary organising principles, enabling entry even with partial industrial depth. Those conditions no longer hold. The world is moving towards selective de-globalisation driven by shocks, geopolitics, and domestic pressures, exposing the limits of shallow integration.
Since the global financial crisis, and more sharply after the pandemic, trade and investment flows have become more selective and strategically shaped. Supply chains are being reconfigured through policies such as “friend-shoring,” export controls in critical technologies such as AI, chips, and semiconductors, competition for critical minerals, and industrial subsidies, reflecting a shift from efficiency to resilience. According to the International Monetary Fund (IMF), global investment is increasingly fragmenting along geopolitical and strategic lines, with access shaped by alignment, security considerations, and technological capabilities. This raises the threshold for participation with firms across borders, now being evaluated not just on cost, but on reliability, technological depth, and alignment within trusted production networks. In such a system, integration without capabilities becomes structurally fragile, more exposed to exclusion, substitution, or policy-driven realignment. For India, this means that the earlier model of entering global markets with limited domestic depth is not just insufficient, but also increasingly untenable.
A Narrow Window of Opportunity
For India, this reconfiguration creates a narrow but real opportunity to enter global value chains as firms diversify production away from concentrated hubs such as China. Large domestic markets and supporting policy environments can help India position itself as an alternative manufacturing base. Recent policy initiatives, including Make in India and Production-Linked Incentive (PLI) schemes, reflect an attempt to position domestic manufacturing within this shift. The rise in mobile phone exports, from negligible levels a decade ago to over 15 billion dollars in 2023–24, offers an early indication of this potential.
Yet this opportunity is inherently conditional. Without significant upgrades in skills, infrastructure, and firm-level productivity, such gains may remain concentrated in a few sectors and firms rather than diffusing into broader industrial ecosystems. The result could be rising exports without corresponding sustainable improvements in productivity, employment quality, or technological depth, repeating earlier patterns of narrow growth without structural transformation.
Sequenced Integration, Not Premature Openness
The key policy question, therefore, is not whether to integrate more or less, but how. What is required is a strategy of “sequenced integration”, where domestic industrial capabilities are built alongside, rather than assumed to follow from, global integration. Integration, in this approach, becomes a means to deepen capabilities, rather than an end in itself.
This is not an argument against openness, but against premature integration without depth. This requires policy designs to prioritise the conditions under which firms can scale, compete, and embed within production networks. In a more selective and geopolitically structured global economy, the order and depth of integration matter as much as their extent.
From Incentives to Ecosystems
For India, the current phase of global reconfiguration is less a disruption than a test of how it integrates going forward. The challenge is no longer expanding participation in global markets, but ensuring that such participation translates into sustained gains in productivity, employment, and industrial depth. This requires moving beyond integration as a measure of success to evaluating how deeply it reshapes domestic capabilities.
Looking ahead, the real question is not how deeply India integrates into the global economy, but whether it does so in a way that builds lasting economic strength.