The End of Globalization and India’s Precarious Path in a New Mercantilist World

The End of Globalization and India’s Precarious Path in a New Mercantilist World

Introduction

The tectonic plates of the global order are shifting. The era of hyper-globalization—characterized by relatively open borders for goods, capital, and ideas, underpinned by a network of multilateral institutions and a normative commitment to liberal cooperation—is declared over. In its place, a new, more volatile system is emerging: a return to mercantilism, where trade is wielded not as a mutual engine of growth but as an instrument of national power, where surpluses are lauded as strength and deficits viewed as dangerous vulnerability. This profound transition, moving from a rules-based, interconnected system to one defined by raw sovereignty and strategic competition, poses an existential question for the world’s largest democracy: Is India prepared for the end of globalization?

This is not merely an economic query but a multifaceted challenge encompassing geopolitics, domestic political economy, state capacity, and social contract. The analysis drawn from the provided text reveals a stark landscape: a world where the political system governing global trade is broken, where the rise of China has shattered old assumptions, and where populist inward turns in the West have dismantled the crutch of cooperative frameworks. For India, a nation that both benefited and chafed under the old order, this moment is one of acute peril and latent possibility. Navigating it successfully will require a clear-eyed assessment of past failures, a ruthless focus on building genuine capability, and a strategic realism that replaces grandiose rhetoric with actionable foundation-laying.

Deconstructing the Death of the Old Order

Globalization was never just an economic phenomenon; it was a political system. It defined how governments managed markets, engaged with one another, and participated in institutions like the WTO, IMF, and World Bank. Its ideological veneer was liberalism, democracy, and global cooperation. However, this system rested on fragile political assumptions: the primacy of open markets, the free movement of capital (but not labor), the cross-border enforcement of contracts, and a commitment to negotiating shared resources. For decades, these held, driving growth and poverty reduction from Asia to parts of Latin America.

The unraveling began with two colossal, unintended consequences. First, the internal fracture within nations: the returns to capital dramatically outstripped wage growth. As supply chains globalized, manufacturing hollowed out in the industrialized West, concentrating wealth and creating deep-seated economic anxiety. This dislocation fueled a populist, nativist backlash that turned societies inward, recasting global cooperation as a costly distraction or a direct threat to national prosperity. The political manifestation of this was the abandonment of the old system’s restrained use of power. Now, actions once justified under a broader normative framework—like the pursuit of democracy or stability—are dropped. The threat to impose tariffs on a country for simply “displeasing” a leader, as hinted in the text, exemplifies this new raw, transactional, and punitive approach to bilateral relations.

Second, the external geopolitical shock of China’s rise. China is the paradox that broke the system. It integrated into the global economy, absorbing its technology, capital, and markets, while resolutely rejecting its political and normative core. The Chinese model maintained rigid state control over capital, labor, and information, proving that immense wealth and power could be accumulated without liberalizing politically. Furthermore, China’s mercantilist strategy—pursuing massive trade surplies through a model of excess capacity and external demand—has actively stunted the industrial aspirations of other developing nations, including India. China didn’t just become a major player; it became an alternative model, challenging the very idea that economic success required political liberalization.

Together, these forces have killed the old globalization. What is taking its place is a “return to mercantilism.” This neo-mercantilism is not the colonial resource extraction of the 18th century but a sophisticated, 21st-century version where states use all tools—tariffs, subsidies (disguised as industrial policy), technology sanctions, and friend-shoring—to build national self-sufficiency and strategic advantage. Cooperation is strictly transactional and zero-sum. The multilateral institutions stand enfeebled, their legitimacy drained.

The Crutch is Gone: Implications for the Developing World

For developing countries like India, the collapse of the liberal order is particularly treacherous. The post-colonial global system, for all its flaws and power imbalances, offered certain crutches. Normative frameworks, however imperfect, provided a language and platform for collective negotiation. The text poignantly notes that “the crutch of global cooperation has already been taken away.” International aid is now explicitly tied to the national interests of donors, not to developmental need or shared global goals. On critical transnational challenges—climate change, tax evasion, illicit financial flows—the weakening of multilateral forums severely hampers the ability of smaller, poorer nations to bargain collectively. They are left to fend for themselves in a jungle of great power politics.

Domestically, the social contract is under immense strain. The “restless youth” in countries like India, more connected and aware than any previous generation, have rising aspirations. They demand quality jobs, functional public services, and a fair share of prosperity. The old model promised that integration into the global economy would eventually deliver this. With that model dead, and the new one offering protectionism and rivalry, political elites face a boiling pot of expectations with fewer external tools to address them. The imperative, as the text states, is for these elites to “recognise this moment and act decisively,” even if initially motivated by self-preservation.

India’s Dual Reality: Too Large to Ignore, Too Poor to Matter?

Where does this leave India? The diagnosis is brutally honest: India occupies a paradoxical and precarious space. It is “simultaneously too large to ignore and too poor to matter.” Its demographic heft, geographic size, and strategic location ensure it gets a seat at the table. But its economic scale, per capita income, and—crucially—its state capacity often prevent it from being a decisive agenda-setter.

The past 15-20 years represent, in this analysis, a historic squander. India’s much-touted demographic dividend—a young, growing workforce—has not been converted into productive capacity. Instead of using the tailwinds of the earlier phase of globalization to build world-class infrastructure, educate its masses, and overhaul its health system, growth has been patchy and disproportionately captured. “The social pyramid has become more sharply stratified,” with a vast, impoverished base supporting a narrow, wealthy apex. This is not just a moral failing; it is a strategic liability in a mercantilist world. A nation’s power in a zero-sum system is rooted in its comprehensive national strength, which depends on a healthy, skilled, and cohesive population.

Domains of Potential and the Barrier of Political Economy

Despite this bleak assessment, the text identifies niches where India could still forge a role as a “serious player.”

1. Digital Public Infrastructure (DPI): This is highlighted as the most prominent. India’s India Stack (Aadhaar, UPI, etc.) offers a unique, scalable model for digital governance and financial inclusion that is already attracting global interest, especially from the Global South.

2. Renewable Energy: As the world grapples with energy transitions, India’s massive market and solar potential position it as a crucial arena for deployment and potentially innovation.

3. Services Sector: India’s established strength in IT and business services remains a comparative advantage, though it must climb the value chain.

4. Democratic Decentralization: India’s federal, democratic structure could, in theory, offer a resilient and responsive governance model in a world of autocratic surges.

However, a critical caveat is immediately raised: “it is hard to see how those possibilities can be realised under the current political economy.” This is the central dilemma. Realizing these potentials requires massive, sustained public investment in human capital (health and education) and physical infrastructure. It requires a “credible commitment to expanding the base” of prosperity. The current trajectory, however, suggests a political economy more focused on managing perceptions, catering to narrow interest groups, and relying on nationalistic rhetoric rather than undertaking the hard, long-term institution building.

The Vishwaguru Gap: Rhetoric vs. Foundational Strength

The text concludes with a powerful warning about the gap between aspiration and foundational reality. India often lays claim to being a “Vishvaguru” (world teacher), a civilizational leader. Yet, this ambition rings hollow without the “institutional foundations and economic means to achieve it.” In a mercantilist world order, low state capacity—the inability to effectively collect taxes, deliver public goods, enforce contracts, or coordinate complex policies—“will only result in long-term irrelevance.” Power will accrue to states that can mobilize resources efficiently, innovate systematically, and maintain internal cohesion.

Mercantilism rewards strength, discipline, and capability. It punishes weakness, dysfunction, and inequality. For India, the path forward is not to nostalgically cling to a dead liberal order or to merely mimic China’s authoritarian state-capitalism. It must forge its own third way: leveraging its democratic vitality to build social cohesion, enacting a new social contract that shares growth more evenly, and undertaking a relentless, decades-long project to strengthen the sinews of the state. This means prioritizing learning outcomes in schools over temple inaugurations, healthcare access over statue building, and regulatory transparency over cronyism.

The end of globalization is not the end of India’s story; it is the beginning of its most consequential chapter. The rules have changed. The game is harder. The margin for error is slim. Whether India becomes a shaper of the new order or remains a largely ignored spectator will depend on choices made today in the unglamorous trenches of institution-building, far from the glamour of global summits. The mercantilist age waits for no one, and it is unforgiving to those who are unprepared.

Q&A Based on the Analysis of Globalization’s End and India’s Position

Q1: According to the text, what is replacing the old system of liberal globalization, and what is its core characteristic?
A1: The old system of liberal globalization is being replaced by a return to mercantilism. The core characteristic of this new order is the treatment of trade as an instrument of state power rather than a mutually beneficial engine of growth. In this framework, trade surpluses are seen as a source of national strength and strategic advantage, while deficits are viewed as vulnerabilities. This leads to a zero-sum, transactional approach to international relations, where policies like tariffs and industrial subsidies are aggressively used to promote national self-sufficiency and geopolitical leverage.

Q2: How did the rise of China fundamentally challenge and contribute to the collapse of the post-Cold War global order?
A2: China presented a dual challenge. First, it proved that a country could achieve immense economic success and accumulate global power without complying with the multilateral order’s political norms, such as political liberalization, free movement of information, or democratic governance. It retained firm state control while benefiting from global markets. Second, China’s specific economic model—centered on generating massive trade surplies through state-directed excess capacity—actively suppressed the industrial development of other emerging economies, including India. By offering an alternative model of authoritarian state-capitalism and acting as a mercantilist power, China shattered the assumption that economic integration inevitably led to political convergence, thereby crippling the ideological and operational foundations of the liberal system.

Q3: Why is the weakening of multilateral institutions particularly dangerous for developing countries like India?
A3: Multilateral institutions provided developing nations with a normative framework and a platform for collective bargaining. Their weakening removes a crucial “crutch.” It means that on vital global issues like climate change financing, taxing multinational corporations, or stemming illicit financial flows, developing countries lose their ability to negotiate jointly from a position of stronger collective leverage. They are forced into asymmetric, bilateral negotiations with more powerful states, where aid and terms are set strictly by the donors’ national interests. This rapidly diminishes their agency and makes it harder to secure fair outcomes in the global system.

Q4: The text states India is “too large to ignore and too poor to matter.” What does this paradox mean, and what is identified as the key factor that could condemn India to long-term irrelevance?
A4: This paradox means that India’s sheer size and strategic weight guarantee it attention and a seat at international tables, but its low per capita income and, more importantly, its low state capacity prevent it from being a decisive, agenda-setting power. The key factor that could cement long-term irrelevance is precisely this lack of state capability. In a brutal, mercantilist world order, power flows to states that can effectively mobilize resources, implement complex policies, deliver public goods, and foster innovation. Without a significant upgrade in the government’s ability to execute—to educate its population, provide healthcare, build quality infrastructure, and ensure rule of law—India will lack the foundational strength to be anything more than a marginal player.

Q5: What are the identified domains where India could still become a “serious player,” and what is the major obstacle to realizing this potential?
A5: The domains of potential are:

1. Digital Public Infrastructure (e.g., India Stack)

2. Renewable Energy

3. The Services Sector

4. Democratic Decentralization (as a governance model).
   The major obstacle is the current political economy. Realizing this potential requires sustained, high-quality public investment in health, education, and institutional strengthening to “expand the base” of development. The text suggests that the prevailing political economic model may lack the “credible commitment” to these long-term, broad-based investments, being potentially distracted by shorter-term goals, rhetoric, or patronage networks. Without a shift in priorities towards building foundational capabilities, these niche advantages may not translate into broad-based national power.