The Economic Survey, which reflects the finance ministry’s views on the state of the economy, referred to tariffs imposed by the Trump administration on trade partners across the world as the “most disruptive” upheaval experienced by the global economy in the past year and said the global economic environment remains uncertain because of geopolitical tensions and trade disruptions.
In a section on the resurgence of “economic statecraft” and the need for India to achieve “strategic resilience and indispensability”, the economic survey said this shift reflects rising geopolitical competition, concerns over technological dominance and vulnerabilities in traditional value chains. Economic statecraft, the report noted, uses tools to achieve foreign policy or national security objectives, “such as compelling a country to stop hostilities with a third party or to liberalise its markets”.
President Donald Trump hit Indian exports with an unprecedented 50% tariffs last year, including a 25% punitive levy on Russian oil purchases as part of his efforts to end the war in Ukraine, leading to strains in India-US relations not witnessed in almost two decades. Indian officials have said the two sides have made “very significant” progress in negotiations for a bilateral trade agreement, though the Trump administration has repeatedly pushed for the opening up of India’s farm and dairy sectors – described by New Delhi as “red lines”.
With geopolitical considerations exerting greater influence than in the 2010s, the report noted that traditional economic assessments have to be supplemented by factoring in “rapidly evolving country alignments and supply chains” and technological developments.
The survey noted that economic statecraft can manifest as either “carrots” or “sticks”, and listed several tools in trade, capital and technology used by both the US and China to hinder the strategic military and civilian capabilities of rival states. These include US export controls on critical technologies such as semiconductors and manufacturing equipment to constrain China’s access to next-generation AI and chip technologies, and China’s export restrictions on critical minerals and permanent magnet materials needed for defence, electronics and energy transitions, such as curbs imposed in early 2026 on dual-use item exports to Japan.
India’s automobile industry was among those affected by China’s tightening of export licences and controls on rare earth materials last year and the matter was officially raised by New Delhi with Beijing, leading to the easing of some curbs.
The report noted that Chinese authorities had added foreign defence and technology firms to “Unreliable Entities Lists”, restricting trade and investment in response to perceived national security threats, while Western nations used sanctions against Russian entities to constrict war-related supply chains.
The report also listed tariffs as another tool of economic statecraft, such as the European Union (EU)’s Carbon Border Adjustment Mechanism (CBAM) or tariff on carbon-intensive imports such as steel and cement that target high-pollution exporters such as China and India, while protecting European industry alongside achieving climate goals.
Fiscal policy too has become a tool of economic statecraft, and hinges on the “extent to which the fiscal deficit can be expanded and financed during a geopolitical crisis”. The report noted that China continues using its “fiscal power to construct infrastructure in other countries through its Belt and Road Initiative, aiming to enhance its trade and economic dominance”.
The economic survey pointed out that economic interdependence, once a source of mutual stability, is increasingly seen as a “channel of vulnerability”, and disruptions during the Covid-19 pandemic, weaponisation of energy and finance during geopolitical conflicts, and growing use of export controls in hi-tech have exposed the limits of efficiency-driven global integration. Both advanced and emerging economies, under the pretext of security, are re-evaluating exposure to concentrated supply chains, critical raw materials and key technologies, the report said.
The report listed several drivers behind the resurgence of economic statecraft, such as the re-emergence of ultra-nationalism and an anti-immigrant stance across regions, which has narrowed the space for multilateral cooperation and rule-based trading and reoriented economic strategies toward inward-looking priorities, and increased scepticism about free trade and multilateral institutions among a growing number of nations.
“The lack of updated global norms to govern competition, investment, and subsidies across different development models, which led to the build-up of imbalances and strategic distrust, is fostering a more fragmented and polarised global order, accompanied by a weakening, both institutional and financial, of traditional standard setting international bodies,” the survey said.
As geopolitical tensions have intensified and armed conflict has flared up in eastern Europe and western Asia after decades of relative peace, even traditionally pacifist countries such as Japan have hiked their defence spending to 2% of their GDP, and strategic competition is increasingly fuelling trade wars as nations vie for critical minerals and technological resources.
Economic statecraft is not new. Historical examples include the Megarian Decree imposed by Athens in ancient Greece and the Roman Empire’s grain provisioning system (Cura Annonae7 ). Kautilya’s Arthashastra is recognised as a systematic treatise on statecraft that integrates economic governance with political and strategic imperatives.
The economic survey contended that India’s reforms and economic performance over the past decade “have helped it stay relevant and resilient, capable of withstanding and adapting to external economic pressures and statecraft without disproportionate disruption”. It recommended that the country must now focus on “deliberately cultivating strategic indispensability” by offering goods, services or roles that are “sufficiently critical to global value chains that partners cannot easily substitute, thereby reducing the effectiveness of coercive measures”.
India’s scale, diversity and capabilities can anchor it within global economic networks and the strengthening of domestic capabilities, maintaining macroeconomic stability and actively shaping rules and standards in emerging areas such as digital public infrastructure will ensure that “integration works as a source of influence and insurance, rather than vulnerability” the report said.
