The tide of US-led globalisation was spreading outward in 1991. Now, it is shrinking inward. It may have made sense in 1991 to use trade as the strategy for economic growth rather than industrial development; not in 2026. In 1991, India switched from the difficult route of building its own high-value adding manufacturing industries to the easier route of imports. Most Indian businesses took this route and became assemblers and marketeers of foreign goods. China, however, continued to build its domestic industries. It was accused of not playing by global trade rules and even stealing foreign technology.
It is important to keep in mind that India and China had comparable technological strengths in manufacturing in the 1980s. Now, India imports from Chinese manufacturers to meet the needs of its consumers and provide machines and electronic hardware for its industries.
India also finds itself squeezed in the geopolitical competition between the US and China. The statistics are revealing. India’s exports to the US were $3 billion in 1991 and imports from that country were $2 billion. India’s exports to the US increased to $86 billion by 2025, and imports to $46 billion — a surplus of $40 billion in India’s favour. Contrast this with India-China trade. It was minuscule in 1991 — less than $0.5 billion. In 2025, India exported $14 billion to China, but it imported $114 billion (almost entirely manufactured goods, including high-tech equipment) — $100-billion trade deficit with China.
India’s external trade-to-GDP ratio is 45% (approximately) today; China’s trade-GDP ratio is 37%. Overall, India’s trade is much less than China’s because the Chinese economy is five times larger. India’s economy has grown 15 times since 1991, China’s 46 times. Per capita incomes matter more to citizens than GDP numbers. Per capita incomes in China have grown 38 times since 1991; in India, only eight times. Climbing up statistical rankings of GDP holds little meaning for the hundreds of millions of Indians, including farmers, workers, and small entrepreneurs, who want to earn higher incomes and live more dignified and secure lives. Moreover, if their incomes do not increase, overall consumption will not increase, and the Indian market will not be attractive for investors. Movements of social and political unrest will continue to grow.
China’s domestic economy has become the engine of its growth. China followed an aggressive industrial strategy from the 1980s to build its own industrial capabilities. It took good advantage of the rising tide of international globalism. By the mid-2000s, international trade accounted for 60% of China’s GDP, most of which was the export of a wide range of manufactured goods. It has declined to 37% since then. Since 1991, India has become much more trade-integrated and much richer, but China scaled up far faster — in export intensity, manufacturing depth, total GDP, and income per person. China has achieved its objective of substantially increasing the incomes of its billion-plus citizens. And China is also able dictate terms to the US.
Many Indian economists, in and outside the government, admit the Indian economy must be reformed boldly. Most of them, whether supporters or opponents of the present government, say India has not implemented the 1991 reform agenda boldly enough. They want more trade; less industrial policy (the latter is “a return to protectionism”, they say); more freedom for foreign capital without conditions; and joining global supply chains more vigorously (even though global supply chains are collapsing). Some have suggested that India can skip the hard work of building domestic industry and grow on the back of a service-led economy.
An export-led strategy will not work for India. It helped the Asian tigers (Japan, Korea, and Taiwan), and China because they implemented vigorous policies to build domestic industries, without which they could not have generated their huge trade surpluses. The Asian tigers seem to be in another phase of export-led growth, but only in AI-related industries (Taiwan and Korea in chips; Japan in chip-making machinery and materials). If these high-tech industries are excluded, exports from these countries have declined — Taiwan’s by as much as 40%. China is beating them in all other industries. The reason is simple. With the US threatening to shut out imports, China has diversified its export markets, eating into the markets that other manufacturers, and India too, were hoping to export to, with wages rising in China and the US trade sanctions in force.
The IMF’s report, Geoeconomics and the Return of Economic Statecraft, is a “mea culpa”. It is an admission that “Washington economics” (IMF, the Chicago School, Wall Street) was wrong. The report says it is time to return to economics for the real economy. The architects of the post-World War II international economic system knew the risks of unrestricted trade. The General Agreement on Tariffs and Trade (GATT) was deliberately negotiated to allow robust use of tariffs to ensure essential security, prevent damage to domestic industries, respond to unfair competition, and balance of payment challenges. In the heady days following the fall of the Berlin Wall, there was a rush to adopt the simplicity of hyper-globalisation and eliminate trade barriers all together.
The contrast between the economic performance of the two billion-plus Asian countries since 1991 is empirical proof of the failure of the Western economics ideology that India adopted and China did not. Since the 1980s, India’s economic policies have been guided by economists wedded to the “US economics” ideology, whichever government has ruled.
Economists on both sides of India’s socio-political divide continue to say India must implement the 1991 reform agenda more boldly. This, however, cannot be the right strategy for India any longer. India must build depth in its own industrial base. It cannot rely any longer on free trade. Incomes must rise much faster within the country. More dignified opportunities must be created for youth to earn and learn on the job in manufacturing and service enterprises. Small farmers’ incomes must be boosted.
The bold economic reform India needs now is to break away from a failed economics ideology. New thinking is required in policy circles; not just new faces. The IMF report says, “It is time for the economics profession to take a cue from Keynes and catch up with the world as it is, rather than how we may wish it to be.”
Arun Maira is the author of Reimagining India’s Economy: The Road to a More Equitable Society. The views expressed are personal
