Economic Survey 2025-26 Charts India's Strategic Swadeshi Path Amid Global Fragmentation
New Delhi: The era of frictionless globalization has conclusively ended, making self-reliance both an economic necessity and a strategic imperative for India. According to the Economic Survey 2025-26 released on Thursday, the nation must prepare for prolonged geopolitical uncertainty, persistent trade disruptions, and volatile capital flows that characterize today's international landscape.
Redefining Swadeshi for a New Global Reality
The survey frames swadeshi not as blanket protectionism but as a disciplined, performance-linked strategy that acknowledges fundamental changes in global economic dynamics. Export controls, technology denial regimes, border carbon levies, and aggressive industrial policies across both advanced and emerging economies have fundamentally altered the calculus of openness that previously governed international trade.
"The policy question is no longer whether the state should encourage Swadeshi, but how it should do so without undermining efficiency, innovation or global integration," the survey states emphatically. It warns that naïve assumptions about permanent access to critical inputs, advanced technologies, and foreign markets are no longer tenable in this transformed environment.
Strategic Trade Diversification and Global Integration
The survey mirrors the Narendra Modi government's intensified focus on promoting self-reliance across sectors while reducing dependence on volatile foreign markets. This strategic shift follows significant external pressures, including US President Donald Trump's imposition of punitive 50% tariffs on Indian goods earlier this year.
India has responded with proactive trade diplomacy, signing a series of agreements to diversify export destinations and strengthen economic resilience:
- Conclusion of negotiations with the European Union for unprecedented reciprocal market access
- Finalized pacts with the United Kingdom and Oman
- Completed negotiations with New Zealand
- Ongoing FTA engagements with the United States, Chile, and Peru
The landmark EU deal particularly expands market access for India's labour-intensive manufactured exports while enabling deeper integration with Europe's technological and manufacturing capabilities. This linkage, the survey emphasizes, is critical for strengthening both export resilience and strategic capacity in an uncertain world.
Balancing Protection and Competitiveness
The Economic Survey offers crucial cautions about implementing swadeshi policies, noting that not all import substitution is desirable. Poorly designed protection can raise economy-wide costs, entrench inefficiency, and weaken export competitiveness—pitfalls India must carefully avoid in an unsettled global environment.
"Import substitution is justified only when domestic production is feasible but held back by coordination failures or regulatory burdens, when protection is explicitly time-bound and linked to learning and scale, when firms face export discipline and measurable benchmarks, and when the product is strategically critical even if cost disadvantages persist," the survey outlines as clear guardrails for swadeshi implementation.
Permanent protection, by contrast, is deemed inappropriate where India already demonstrates cost-competitiveness, where exports operate at scale, or where inputs are widely used across labour-intensive industries, as it risks raising costs and eroding hard-won competitive advantages.
Geopolitical Risks and Capital Volatility
The survey highlights growing vulnerabilities in India's external economic position, particularly as decisions on production and capital become increasingly entangled with geopolitics rather than efficiency considerations. These vulnerabilities were exposed dramatically in 2025 when the United States—India's largest trading partner—announced reciprocal tariffs of 25% on Indian goods in April, followed by an additional penal tariff of 25% on most Indian merchandise exports in August.
This escalation surprised many analysts who had expected India to be an early beneficiary of the US tariff regime. Growth forecasts were subsequently revised downward, reflecting concerns that higher trade barriers would dent exports and investment sentiment.
Compounding these challenges, China's operationalization of the Hainan Free Trade Port represents a gradual structural shift that could influence supply-chain routing, tourism flows, and corporate investment decisions across Asia over time. While not an immediate disruption for India, Hainan's emergence as a low-tariff, services-heavy economic zone with relaxed rules on trade, customs, investment, and visas intensifies competition for investment amid growing global economic fragility.
Building Competitive Foundations
The survey calls for a comprehensive National Input Cost Reduction Strategy that treats competitiveness as essential infrastructure. High input costs—spanning raw materials, intermediates, energy, logistics, and compliance—impose persistent penalties on manufacturing, exports, and employment, particularly for micro, small, and medium enterprises operating on thin margins.
Structural distortions like tariff inversion, where duties on intermediates exceed those on finished goods, discourage domestic value-addition and entrench assembly-oriented imports. Rather than sector-specific interventions, the survey advocates for rule-based reforms that lower costs of general-purpose inputs once domestic capacity exists.
"Lowering input costs strengthens export competitiveness, supports global value chain integration, boosts employment and encourages investment in upgrading," the document asserts, emphasizing that such reforms benefit the entire economy rather than narrow producer interests.
Beyond Cost: The Performance Imperative
The survey makes clear that cost reduction alone is insufficient for building lasting economic resilience. Once price competitiveness is achieved, the binding constraint shifts to performance metrics—reliability, quality, process control, and coordination across institutions. This is where advanced manufacturing becomes decisive for India's economic future.
Manufacturing exposed to global benchmarks simultaneously tests infrastructure, logistics, regulation, and skills, revealing weaknesses that sheltered activities can absorb for years. In this sense, input-cost reform prepares the ground, but advanced manufacturing is where real capability is built and tested.
The True Measure of Swadeshi Success
The Economic Survey cautions against judging swadeshi purely by import reduction metrics. As incomes rise, imports inevitably increase—a pattern observed across two centuries of economic development. China's experience demonstrates that imports can grow alongside domestic industrial dominance when strategically managed.
The true test of swadeshi, according to the document, is whether it creates sustainable export capability and strengthens economic resilience in a world where capital flows and trade are increasingly shaped by geopolitical alignment rather than neutral market forces.
"India should definitely aim to be self-reliant in the sense that whenever a big global power sneezes, our economy shouldn't catch a cold," said Piyush Doshi, operating partner at Foundation for Economic Development. "This means becoming a strong export-driven economy with a meaningful role in global supply chains where we matter to the world as much as the rest of the world matters to us. What it doesn't mean is shutting doors on other countries in terms of imports or FDI and trying to make everything locally, usually at the expense of cost and quality."
The survey concludes with a sobering historical parallel, warning that the period up to 2045 could resemble the interwar years of the 20th century—marked by geopolitical conflict, economic fragmentation, and social stress in advanced economies. While such periods historically produced innovation and industrial expansion, surviving and converting disruption into opportunity will require proactive, forward-looking policy frameworks rather than defensive reactions to global challenges.
