The world economy is undergoing a major transformation driven by the U.S.–China rivalry, digital dominance, and shifting trade flows. For India and the Global South, this moment offers a rare chance to build a fair, inclusive, and rules-based global economic order.
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Navigating the Global Economic Transformation
Why It’s in the News
The global economic landscape is witnessing a historic transformation. Traditional economic paradigms, once dominated by the liberal order led by the United States and Western economies, are being redefined amidst growing tensions between the U.S. and China.
This realignment is reshaping trade flows, global supply chains, currency systems, and digital economies, while also presenting opportunities for nations like India and the Global South to demand a more equitable and inclusive world order.
The shift is driven by:
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Geopolitical competition between major powers.
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Rise of populist autocracies blending political control with corporate power.
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Technological disruptions like Artificial Intelligence (AI), Big Tech dominance, and state-backed digital currencies.
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Decline of global development aid and growing inequality.
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Key Points for UPSC (Prelims & Mains)
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Emerging State-Capital Nexus
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Rise of populist-autocratic governments supporting large corporations for political gains.
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Prioritization of corporate welfare over citizens’ welfare, weakening the social contract.
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Example: State-backed industrial champions in countries like Russia, Turkey, and China.
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Geo-Economic Strategies of the U.S.
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Onshoring and friend-shoring of supply chains (e.g., CHIPS Act encouraging semiconductor production within U.S.).
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Strategic control over rare earth supply chains, maritime routes, and digital ecosystems.
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Pressure on Europe, Israel, and Asian partners to manage geopolitical crises (e.g., Ukraine, Taiwan, West Asia).
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Digital Capitalism and Colonialism
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Big Tech dominance reshaping global economies and politics.
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Emergence of Central Bank Digital Currencies (CBDCs) — piloted by nearly 100 central banks (BIS, 2023).
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Risks: Erosion of economic sovereignty, data control, and privacy concerns.
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Example: SWIFT payment system weaponisation during Russia sanctions.
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Withdrawal of Development Aid
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G7 aid cuts ($44 billion) causing rising poverty and migration in Africa and Asia.
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World Food Programme (WFP) cuts affecting 16.7 million people (2023).
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Impact: Increase in distress migration, militancy, and political instability (e.g., Sahel region, Nepal).
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Fragmentation of Global Trade
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U.S. tariffs and sanctions on 70+ countries disrupting trade, technology, and financial flows.
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Push towards localisation, de-dollarisation, and South-South cooperation among Global South nations.
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India’s Role and Opportunity
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India and Global South can collaborate to design a New Economic Deal.
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Need to push for reforms in IMF, World Bank, and WTO for better representation.
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Focus on debt relief, fair trade policies, and non-aligned (multi-aligned) diplomacy.
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Recent Developments & Global Context
| Area | Key Global Trends | India’s Context |
|---|---|---|
| Trade & Economy | U.S.–China decoupling, de-globalisation, friend-shoring | India promoting Make in India, PLI schemes, and Atmanirbhar Bharat |
| Finance | CBDCs, digital payments, FATF regulations | India piloting Digital Rupee (RBI e₹) |
| Technology | AI regulation debates (EU AI Act, U.S. AI Safety Summit) | India drafting Digital India Act and AI Framework |
| Global South Cooperation | BRICS expansion, new alliances in Africa, Latin America | India strengthening South-South cooperation and Voice of Global South Summit (2023) |
| Development Aid | G7 aid cuts and debt distress | India expanding lines of credit to Africa, South Asia |
| Inequality & Poverty | Top 10% own 52% of income (World Inequality Report 2022) | India improving through welfare digitalisation (DBT, PMGKY, PM-Kisan) |
Relevant Conventions and Treaties (Elaborated)
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Bretton Woods System (IMF, World Bank) – Created post-WWII to ensure financial stability but now criticised for under-representing developing countries.
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World Trade Organization (WTO) – Faces a crisis due to rising protectionism and unilateral sanctions.
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Financial Action Task Force (FATF) – Sets global anti-money laundering (AML) standards; threatened by rise of CBDCs and opaque digital currencies.
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UN Sustainable Development Goals (SDGs) – Especially Goal 8 (Decent Work & Economic Growth) and Goal 10 (Reduced Inequality) directly relate to economic transformation.
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Paris Agreement (2015) – Climate commitments now intersect with trade and industrial policy (carbon border taxes, green transition subsidies).
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Advantages and Disadvantages for India and the World
Advantages
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India’s demographic and digital advantage enables leadership in the Global South.
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Opportunity to diversify trade partners through BRICS, SCO, and South-South platforms.
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Shift towards localised production aligns with India’s self-reliance goals.
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Reforms in global institutions could enhance India’s voting power and representation.
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Emerging digital public infrastructure (DPI) positions India as a model for equitable digital growth.
Disadvantages
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Fragmented global trade may reduce export markets and investment flows.
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Geopolitical rivalries can pressure India to choose sides (e.g., U.S. vs. China).
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Digital colonialism by Big Tech threatens India’s data sovereignty.
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Decline in global aid and remittances can affect India’s neighbourhood stability.
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Sanctions and protectionism could raise costs and disrupt supply chains.
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Factual References (UPSC-Relevant Reports & Institutions)
| Source | Year | Key Finding |
|---|---|---|
| World Bank, Poverty and Shared Prosperity Report | 2022 | 47% of global population lives below $6.85/day; 735 million face hunger |
| World Inequality Report | 2022 | Top 10% of population earns over 52% of global income |
| BIS CBDC Survey | 2023 | Over 100 central banks exploring digital currencies |
| UNDP Human Development Report | 2023 | Warning of “new poverty traps” due to technological and financial inequalities |
| OECD Aid Statistics | 2024 | G7’s $44 billion aid cuts disproportionately hit African nations |
| IMF World Economic Outlook | 2024 | Predicts a “multi-polar global economy” by 2030 |
Way Forward
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For India
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Build bipartisan and non-partisan foreign economic policy grounded in national interest.
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Strengthen strategic autonomy through calibrated multi-alignment.
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Institutionalise sovereign wealth funds and anti-monopoly frameworks.
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Invest in research, innovation, and education autonomy to enhance competitiveness.
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Retain control over strategic sectors (energy, digital finance, defence, space, water).
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For the Global South
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Push for reform of global financial institutions to reflect equitable representation.
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Develop a New Global Economic Deal focusing on sustainable debt relief.
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Promote South-South digital and financial collaboration (BRICS Pay, Digital BRICS).
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Advocate for fair trade policies and inclusive globalisation.
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For the World
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Move towards a rules-based, inclusive, and sustainable global economic architecture.
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Ensure digital sovereignty and equitable technology transfer.
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Balance state intervention with market innovation for inclusive growth.
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UPSC Quick Facts
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Global Trade Fragmentation: U.S. tariffs on over 70 nations; sanctions on 30+ countries.
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G7 Aid Cuts: $44 billion reduction impacting 5.7 million Africans by 2026.
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Digital Currency Pilots: 100+ central banks testing CBDCs (BIS, 2023).
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Inequality: Top 10% hold over half of global wealth.
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World Food Programme: Funding cuts affected 16.7 million people (2023).
Conclusion
The ongoing global economic transformation is not merely a financial realignment but a redefinition of power, technology, and governance. For India and the Global South, it is a moment of both risk and opportunity — to champion equitable globalisation, strengthen economic sovereignty, and construct a new economic architecture that upholds justice, sustainability, and inclusiveness.
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