Table of Contents

India has a strong tradition of self-sufficiency. Historically, the country’s foreign trade usually involved exports of goods such as textiles and spices and imports of precious metals.1 The Industrial Revolution changed the world economic order and rapidly diminished India’s salience in the global economy. It also caused irreparable damage to the country’s idea of self-sufficiency. India produced about 25 percent of the world’s industrial output in 1750, but by 1900 this had fallen to 2 percent.2

In the twentieth century, foreign colonial rule and a decline in India’s economic power provided a fresh cause for skepticism toward economic integration. After gaining independence in 1947, India chose an inward-looking strategy of economic development, with a focus on boosting domestic capabilities. The key elements of this strategy were investment in capital-intensive industries and state dominance in economic development. After an initial acceleration in economic growth in the 1950s and 1960s, the problems started piling up when growth slowed and other macroeconomic indicators, such as inflation, went out of control. India’s mediocre economic outcomes in this period affected the country’s strategic capabilities and therefore its geopolitical stature. Improving economic performance became a strategic and political imperative.

A period of slow transition then began. In the 1990s and 2000s, India witnessed an unprecedented rise in trade, financial, and, eventually, digital integration. Several global firms invested in India, and many Indian firms invested abroad. Although India lowered entry barriers, the country’s economy was able to compete in many sectors—and even discovered new areas of strength, such as information technology (IT) and IT-enabled services.

These trends started reversing again at the beginning of the 2010s. Trade integration slowed and financial integration began to unwind. Issues of taxation of multinational firms became contentious as India sought to tax incomes generated by foreign companies operating in the country. Although the data market remained mostly open for foreign firms, India’s stance gradually shifted, and it is likely that digital integration may also reverse to some extent.

While India remains committed to multilateral action in domains from climate change and taxation to trade and data flows, the country’s domestic positions on these issues have altered considerably. This shift is reflected in India’s overall attitude toward globalization, which is an evolving paradigm. This transition is happening in a context in which the institutional order that underpinned globalization is under pressure from the great power rivalry between the United States and China and a backlash against globalization.

Global Trade Reform

After many years in which tariffs steadily declined, India has more recently raised tariffs again. The country’s average most-favored-nation applied rate—the tariff that members of the World Trade Organization (WTO) impose on imports from other members unless they are part of a preferential trade agreement—rose from 13.8 percent in 2017 to 17.6 percent in 2019. Similarly, in 2016, 90.7 percent of tariff lines had duties of 10 percent or lower, while in 2019 only 63.5 percent of tariff lines were in this category.3

Suyash Rai
Suyash Rai is a deputy director and fellow at Carnegie India. His research focuses on the political economy of economic reforms, and the performance of public institutions in India.
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In March 2020, the Indian government announced a scheme of production-linked incentives to promote domestic manufacturing capabilities and reduce the country’s dependence on energy imports.4 India has become increasingly wary of joining new trade blocs to which it has been invited, most recently the Regional Comprehensive Economic Partnership (RCEP).

Meanwhile, India has struggled since 2012 to achieve export growth. In 2019–2020, the country’s total exports were the equivalent of only 19.4 percent of gross domestic product (GDP)—well below the peak of 25.2 percent they had reached in 2013–2014 (see figure 1). The growth of India’s share in world trade has decelerated, too. In fact, in the trade of most product groups, India’s share peaked a few years ago and has declined since. India’s integration into global value chains has also been low, despite the country having capabilities that should have allowed for a better performance.5 India has remained a fringe player in global value chains.6

Another aspect of India’s experience with trade liberalization is the country’s failure to make gains in merchandise trade that involves labor-intensive manufacturing. Most of India’s trade gains have come from skill- or capital-intensive goods and services.

Related to this failure on merchandise exports is an increase in India’s trade deficit with China. Between 2007–2008 and 2017–2018, India’s exports to China increased slightly from $10.8 billion to $13.3 billion, while its imports from China rose significantly from $27.1 billion to $76.4 billion. By 2017–2018, India’s trade deficit with China was about 39 percent of its total trade deficit, up from less than 20 percent a decade earlier.7 As a strategic adversary of China’s, India is wary of allowing this trend to continue. The possibility of weaponized interdependence has raised concerns and calls for policy action, especially because some of this interdependence relates to crucial goods like pharmaceuticals.8

India’s efforts to boost its exports through nontariff measures have run into disputes with other WTO countries. Certain subsidy schemes and special economic zones have been challenged through the WTO’s dispute settlement system. In 2019, India lost a major dispute initiated by the United States over alleged export subsidies.9

A Protectionist Pivot

The slowdown in India’s exports, the country’s weak integration into global value chains, its limited success in labor-intensive goods, and its increasing interdependence with China have led to debates about India’s stance toward trade. It is no longer easy to make the case that falling tariffs coincide with a rapid rise in exports. This has created opportunities for segments of Indian industry to demand protection and fiscal support. The language of self-reliance has gained currency in this context.

This shift in policy stands in contrast to official rhetoric. At the 2018 World Economic Forum in Davos, Indian Prime Minister Narendra Modi appealed for trade openness and global coordination: “Many countries are becoming inward focused and globalization is shrinking, and such tendencies can’t be considered lesser risks than terrorism or climate change.”10 This seemed like a strong endorsement of globalization and open trade. When the United States and other countries were turning their backs on global economic integration, it appeared that India would be a leader in efforts to salvage and rebuild the institutional order that underpins such integration. However, India’s policy changes since 2017 suggest that India, too, is turning inward. It is not clear how far this shift will go.

Anirudh Burman
Anirudh Burman is an associate research director and fellow at Carnegie India. He works on key issues relating to public institutions, public administration, the administrative and regulatory state, and state capacity.

What is the basis for a pivot toward protectionism and producer-specific fiscal support? In some cases, such a pivot may be justified by a lack of opportunities related to a country’s existing capabilities. Yet, India has the technological abilities to move up value chains by making more complex products and services in categories from industrial machinery and vehicles to chemicals and plastics. In commercial services, such as IT, India can leverage its capabilities to produce more complex services. Thus, the fact that India has struggled to increase its exports is likely because of failings in the country’s domestic political economy, rather than the challenges of the niche that India occupies in the global economic order.

India’s pivot toward a more protectionist and activist approach therefore cannot be explained by a lack of opportunities in world markets. Rather, there seems to be an ideological shift in India’s understanding of how the country should compete on the world stage. This shift may be supported by interest groups that stand to benefit from it, but it is not based on the facts of India’s present capabilities. In addition, the country’s increasing interdependence with China has raised strategic concerns, which prompted India’s 2019 decision not to join the RCEP. India’s raising of tariff barriers in recent years seems to be directed mainly, but not solely, toward imports from China.

So, perhaps Indian policymakers believe that the policy pivot can both improve the competitiveness of Indian firms in world markets and reduce India’s interdependence with China. However, India’s experience in the pre-reform period from the 1950s to the 1980s offers a warning that this pivot is not without risks. In that period, too, the policy focus was on building domestic capabilities through protectionism and fiscal support. That approach did achieve significant successes in building up Indian technological capabilities in a few sectors, which played a role in accelerating the country’s growth after the reforms in the early 1990s. But in the pre-reform period, India’s licensing and planning institutions did not allow the country to achieve global competitiveness in its emerging sectors.11 As a result, India by and large did not become globally competitive, even in high-capability sectors. Unless implemented carefully, the current drive toward self-sufficiency could lead to similar outcomes.

A Shifting Global Economic Order

To understand how India’s stance toward the world trade order might change in the coming years, it is important to take stock of the country’s role in current global trade negotiations. Twenty years after it was kicked off, the failure of the WTO’s Doha Development Agenda is increasingly clear—as is the resultant pause in multilateral rulemaking. Although India sometimes took an intransigent position toward this agenda, it would not be fair to blame the country for its failure, because neither did developed nations stay true to the agenda on issues like agricultural subsidies.12

More recently, global discussions have begun to find plurilateral, rules-based arrangements for trade in services such as e-commerce and investment facilitation. India has not joined these discussions; it has questioned their legal status and sees them as a surreptitious attempt to introduce new rules into the WTO framework.13 The structural reason for the breakdown in multilateralism is the changing global economic order. The rapid rises of India and China have had a paradoxical effect on this order. On the one hand, the centrality of trade to these countries’ growth has justified the arguments of those who consider free trade a force for good. On the other hand, the rises of these two large countries have created problems for negotiations to further open up trade.

These problems have appeared in three related ways. First, there has been an antiglobalist backlash in some developed countries, where many people have the perception that free trade has not been beneficial to them. Because of this, further opening of markets in the developed world has become more difficult. Second, an increase in the relative influence of developing countries has given them greater bargaining power to stall agreements. Third, as India’s and China’s exports and economic growth took off, some negotiating strategies, such as arguments about protecting the poor, appeared increasingly anachronistic. This is truer of China than of India, which has a much lower income and a lower share in world trade than China.

Still, some developed countries have cited India’s and China’s successes to argue for reduced flexibility for developing countries. When the United States proposed objective criteria to determine when a country could get special and differential treatment (S&DT), a WTO principle that exempts developing nations from certain obligations, India was among the developing countries that opposed the scheme. That is because some of the proposed criteria—for example, being a member of the Group of Twenty (G20) or accounting for over 0.5 percent of global merchandise trade—would have worked against India. In spite of their differences, India and China have often joined forces on the matter of S&DT.

Possible Policy Directions

The failure of the Doha agenda is a symptom of these and similar changes. India’s reform proposals— especially those addressing the WTO’s dispute settlement mechanism, rulemaking, and transparency requirements—have not gone far.14 There are feedback loops between India’s protectionist and activist pivot and its evolving approach toward the world trade system: the outcome of the pivot may shape India’s stance toward trade agreements, and the terms of those agreements may shape the extent of the pivot. While it is too early to say much about the directions in which these changes might point, certain possibilities exist.

First, India’s reluctance to embrace plurilateral arrangements could eventually create an incentive for the country to contribute to rebuilding the multilateral order. India stayed away from the now-defunct Trans-Pacific Partnership and, despite participating in negotiations for the RCEP, decided not to join the agreement. Eventually, for India to benefit from trade, the country may have to invest in rebuilding the multilateral framework, which helped it achieve considerable growth for about two decades.

Second, although India and China were allies on many issues in trade negotiations until recently, their interests may not align as much going forward, which could create opportunities to break the stalemate between developed and developing countries. China has enjoyed the benefits of its considerable production capacities while making use of S&DT. Even though it is now an upper-middle-income country, China continues to classify itself as a developing nation and therefore benefits from weaker market-access commitments, easier implementation timelines, and other benefits.15

India is now more wary of China than in the past. It is in some developed countries’ interests to widen this gap. For instance, if the United States modifies its proposed criteria for graduating from developing-country status for the purpose of S&DT by raising the threshold for this status or allowing a special category based on poverty levels, India might not oppose the proposal. Criteria that would allow India to get S&DT while denying such treatment to China are now more feasible as the gap between the two countries has widened. This could lead to fewer possible alliances among developing countries.

For now, India seems to be pivoting toward protectionism and fiscal support for domestic producers. The country has been reluctant to join the major plurilateral arrangements that have taken shape. However, as the consequences of these changes become clear, it is possible that India could contribute to rebuilding the WTO-led reform of trade rules by offering a new agenda that reflects today’s realities and, possibly, by allowing for more agreements by breaking ranks with China.

Multilateral Rules on Global Finance

After a major balance-of-payments crisis in the early 1990s, India undertook capital-account reforms. The focus was on attracting investment from overseas—both foreign direct investment (FDI) and portfolio investments. From negligible levels in the early 1990s, India’s gross inflow of FDI rose to about 1 percent of GDP in the early 2000s, and then to above 2 percent in 2006–2007.16 The level has remained at more than 2 percent of GDP for most of the years since. The country’s policy regime for FDI has gradually become more open.

India’s approach to debt flows has remained quite cautious. There is practically no sovereign borrowing in foreign currency, and external commercial borrowing by firms is regulated. As a result, outstanding external debt has remained in the same range since the late 1990s. Outward flows were liberalized, first in 1992 and then in 2004, when the limit of outbound investment by firms was raised. Outbound portfolio investments have been allowed, but with caps on the level of flows per person per year.

India’s financial integration, in terms of both the country’s current account and its capital account, increased substantially after the reforms in the early 1990s (see figure 2).17 Capital-account integration accelerated sharply from 2003–2004 onward, as did current-account integration after 2004–2005. This acceleration reversed after the 2008 global financial crisis. India’s financial integration has declined further in recent years, especially since several capital controls were put in place to arrest and reverse a sharp slide in the rupee’s exchange rate in 2013. This trend broadly aligns with the reversal in trade and investments in the Indian economy.

India’s approach to capital controls lacks transparency and can appear arbitrary, as the policy’s objectives and evidence base are not clearly stated. A 2016 report by the International Monetary Fund (IMF) classified India as a country with “pervasive controls across all, or almost all, categories of assets.”18 Indeed, India has among the most restrictive capital controls in the world. Over time, however, firms and individuals have found ways to sidestep some restrictions.

What is more, although many de jure capital controls are in place, the de facto position is somewhat different. After the economic reforms in the early 1990s, many Indian firms became multinational corporations with a presence in multiple countries. These companies were integrating through forward and backward linkages even while India’s financial integration was restricted.

India’s domestic regulatory landscape has also influenced the country’s policymaking stance at the international level. India has long called for reform of the IMF’s governance and system of quota shares, which determine members’ voting power. In 2010, the fund initiated certain reforms to give developing countries greater shares in the organization, among other aims. The United States finally ratified these changes in 2016. Yet, even though the reforms increased the quotas of India and China significantly, they are still not proportional to these countries’ shares in world GDP.

After the 2008 global financial crisis, the 2009 G20 summit in London prioritized global coordination of financial regulation to promote international stability. The Financial Stability Board (FSB) was established to issue principles for regulatory systems, coordinate with member countries on the implementation of these principles, and review members’ progress toward them. In the FSB’s 2020 review, India scored well on the implementation of standards in banking and nonbanking regulation but poorly on derivatives regulation and a resolution regime for financial institutions.19

To a large extent, India has been a rule taker in these domains, but it has adapted the rules and implementation timelines to suit its context. The thought leadership on regulation of the global financial system and coordination among domestic regulators originated almost exclusively in Europe and the United States, but countries like India have gradually started to play a role in global policy formulation.

Global Taxation Rules

India has played a constructive part in global tax negotiations. However, the country has not shied away from taking a unilateral position if global dialogues have not served its interests. This stance reflects India’s domestic constraints on its fiscal situation.

Within the Organization for Economic Cooperation and Development (OECD), India has taken a leadership role in representing the positions of developing countries. It is a vocal member of the Group of Twenty-Four (G24) forum of developing countries in the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS)—the practice of exploiting mismatches between countries’ tax systems.20 In 2017, India signed the OECD-negotiated convention on tax-treaty measures to prevent BEPS, which allows governments to close gaps in international tax rules by updating bilateral tax treaties. At the same time, India recorded significant reservations about substantive provisions in the convention, for example on the arbitration of tax disputes.21 In addition, India has advocated the need for a change in perspective to reflect the concerns of developing countries, especially on issues such as source-based taxation.22

The result of the OECD’s effort on BEPS has been to alter and expand the agenda of international tax policymaking.23 However, this expansion has not made a significant difference to lower-income countries such as India that are part of the Inclusive Framework. While large emerging economies have been able to dominate meetings of the OECD’s working parties, they have not had similar successes in higher tiers of the organization’s decisionmaking processes.

India has, however, driven the G24’s agenda on issues relating to permanent establishment and the concept of significant economic presence (SEP) for establishing jurisdiction for digital firms. A G24 proposal in 2019 argued that businesses that interact with customers extensively in markets where they do not have a physical presence create a permanent establishment there, and that such market jurisdictions should be able to tax these firms’ business income.24 Yet, in the words of one expert in international tax law, the OECD “completely excised” the G24 proposal without explanation because it was “apparently not considered feasible.”25 This indicates that lacunae continue to exist in the OECD’s decisionmaking procedures. Many members have therefore preempted the organization’s decisions by adopting unilateral measures against tax avoidance that target the digital economy.

Unilateral Steps

India started taking unilateral measures on digital taxation as early as 2016, when it became one of the first countries to impose an equalization levy on payments from Indian residents to nonresidents for online advertisements.26 Similarly, India incorporated a definition of SEP into its tax laws in 2018, even while the OECD was completing its work on the taxation of the digital economy. This was followed by a second iteration of the equalization levy, which widened the scope of the measure such that “any nonresident e-commerce operator with an Indian consumer base must pay a 2 percent levy on its gross transaction value.”27

India’s positions on BEPS and digital taxation are based on domestic revenue considerations. The Indian government considered the 2016 equalization levy along with a range of other options for digital taxation and chose the levy because it avoided the need to amend many tax treaties.28 Likewise, in 2020, a government committee proposed revising the rules on attributing profit to companies with permanent establishment. In its report, the committee criticized the OECD model, which seeks to attribute profits to a firm’s country of permanent establishment on the basis of functions, assets, and risks, because it did not include demand-side factors, such as consumer demand in the market.29

India’s unilateralism has been driven by both the needs of a developing economy trying to maintain a high rate of economic growth and the country’s unique fiscal situation of running significant primary deficits. To reduce this vulnerability, India is trying two approaches. The first is to increase the country’s tax base by finding new sources of revenue. The second is to raise revenue collections by encouraging growth and making tax compliance easier.

India’s move to impose an equalization levy and willingness to take independent steps on BEPS represent efforts to fulfill the first goal of identifying new sources of revenue to meet major revenue shortfalls. On the second goal, India has significantly reduced its corporate tax rate to 22 percent, lowered minimum alternate tax rates, provided income tax exemptions for certain individuals, taken steps to reduce tax-related harassment, and sought to make the government’s revenue department less litigious.30 Yet, many of the constraints facing the Indian economy are likely to be exacerbated by the coronavirus-induced economic shock.

India’s negotiating attitude and willingness to adopt unilateral steps highlight problems with the structure of the OECD Inclusive Framework for negotiating a new taxation model for BEPS. From India’s perspective, existing processes and substantive proposals fail to reflect the constraints faced by countries such as India. While the creation of the Inclusive Framework was an important step in expanding discussion of the tax policy agenda, the institutional forum perhaps does not go far enough toward solving procedural issues in tax policy negotiations.31

Global Data Policy and Governance

India has moved rapidly in the past decade to build a digital infrastructure and create a legal framework for data. India’s digitization reached an inflection point in the early 2010s with the launch of its unique identification system, which verifies the digital identity of every resident Indian, and the rapid growth of the internet, spurred by private telecommunications companies. These developments helped create a rapidly digitizing economy that boasts the cheapest telecommunications rates in the world. Internet penetration is still growing even as Indians consume the most data per capita of any nation.32 In 2020, India recorded its highest annual level of FDI, 40 percent of which was in the technology sector.33 India has one of the world’s fastest-growing fintech markets, is poised to become Asia’s second-largest data-center market, and is attracting unprecedented investments in e-commerce.34

The consequent realization that India has an important voice in the global dialogue on data regulation affects the state’s perspective and the way it should seek to carve out space to exercise its sovereign prerogatives.

In the second half of the 2010s, the Indian government was quick to develop a regulatory system for the digital market. The Indian parliament is considering a new data protection law, and the government has published a draft e-commerce policy that proposes a level playing field for domestic and foreign firms and stringent regulation of existing e-commerce firms. A committee is examining proposals to regulate nonpersonal data. India has implemented data localization requirements in some sectors, and the 2019 Personal Data Protection Bill proposes to extend this requirement to the whole economy.

Asserting India’s Digital Sovereignty

All these steps mark an assertion of India’s sovereign power in the digital space and an end to the laissez-faire growth of the internet in the country. This assertion has three distinct motivations. The first is to ensure that the economic benefits of digitization and internet growth are retained within India’s jurisdiction. The government has outlined an agenda to create $1 trillion in economic value from the digital economy by 2025.35 This goal underlies the proposals on e-commerce, data localization, and the regulation of nonpersonal data as well as the steps on digital taxation. The government is increasingly expecting foreign-based internet firms to undertake more value addition and pay more taxes in India. This objective also coincides with an emphasis on national champions—domestic firms that take market shares away from foreign companies.

The second motivation is to enable India to harmonize its regulatory framework with those of other leading data markets to the greatest extent possible. The similarities between India’s proposed data protection legislation and the European Union’s General Data Protection Regulation (GDPR) point to this aim. India is also a leading exporter of digital services to developed economies. The emergence of new regulations in other jurisdictions, such as the GDPR, has compelled India’s digital industry to meet requirements to ensure adequate levels of data privacy.

Third, the Indian state seeks to entrench its autonomy and discretionary power to suit its economic, national security, and foreign policy prerogatives within the frameworks of digital regulation. For example, the proposals on data localization point as much to a desire to control data flows as to the state’s freedom to make future decisions on the nature of those flows. Similarly, the proposals to regulate e-commerce and nonpersonal data grant regulatory power to government agencies to make substantive decisions on the nature of such regulation in the future.

One impulse behind this discretionary power is strategic. The Indian government has used its powers to deny market access and inflict costs on adversaries. After a 2020 border crisis with China, the government banned certain Chinese apps. As the state receives more powers over the flow, storage, and processing of data, it may use them for more such purposes.

An area in which the state’s power has been particularly noticeable is the regulation of social media platforms in the context of law enforcement challenges. While India’s domestic legislation has accorded the Indian state sufficient power to impose stringent regulations on social media companies, the state has occasionally threatened such regulation in exchange for voluntary compliance. However, this approach changed in the wake of incidents of arson and violence that took place in January 2021 as an escalation of protests by some farmers against proposed agricultural reforms.36 Blaming social media companies for refusing to cooperate to prevent the dissemination of inflammatory content, the government imposed the most significant changes to social media regulation in a decade.

India’s positions on data regulation in international forums and its calls for the respect of data sovereignty reflect a desire to put in place a domestic regulatory framework that allows the Indian state to navigate the digital economy to its advantage. Likewise, India refused to agree to the concept of Data Free Flow With Trust, launched at the 2019 G20 summit in Osaka. The government stated that the concept was not well understood and that developing countries needed to preserve space for policymaking in the digital economy, given the digital divide between them and developed countries.37

While some of India’s policy measures are indeed unilateral, the substance of the country’s approach should be seen as an attempt to build domestic regulatory capabilities while preserving autonomy for these efforts at the international level. As multilateral and plurilateral arrangements emerge for the regulation of data, India is ready to play a role based on its own interests. These interests are defined by various regulatory frameworks at different stages of development.

Going forward, India’s stance toward international data flows will likely be affected by several currently unresolved issues. It remains to be seen to what extent India’s interests are consistent with the free flow of data across borders—and where Indian interests may not align with such data flows. It is also unclear what outcomes will arise from emerging frameworks. For instance, the economic costs of taxation and other regulation will not be known for some time. Finally, it is not clear how political elites and civil society will respond to efforts to regulate systems of storing, transferring, and processing data. It is possible that some interventions may face political and social resistance.

The Climate Change Agenda

In the initial years of climate diplomacy, India saw climate change as a diplomatic problem rather than a developmental one.38 For the best part of two decades, starting in the 1990s, this view led to a focus on preparing for climate negotiations based on equity in climate governance outcomes.39 India secured the support of developing countries for its basic international positions on climate change. As summarized by Sandeep Sengupta of the International Union for Conservation of Nature, these positions were that,

first, the primary responsibility for reducing greenhouse gas (GHG) emissions . . . rested with the developed world. . . . Second, the emissions of developing countries were still very low and needed to grow to meet their future development. . . . Third, any formal agreement on climate change needed to provide for technology transfer and funds for developing countries.40

These positions led to the idea of common but differentiated responsibilities, which formed the basis of international negotiations on the 1992 United Nations Framework Convention on Climate Change and the 1997 Kyoto Protocol. The concept faced significant pushback from developed countries, which advocated a less differentiated pledge-and-review system. The 2015 Paris Agreement on climate change marked an end to the common but differentiated approach for which India had vociferously argued.

At the same time, India’s domestic political views on climate change were also evolving. In the second half of the 2000s, India articulated a per-capita-plus approach to signal its willingness to go beyond its traditional stance on the responsibility for reducing greenhouse gas emissions.41 Under this approach, specific targets could be assigned through domestic legislation or executive action to key sectors of a country’s economy.42 At the 2009 United Nations Climate Change Conference in Copenhagen (COP15), India offered a pledge to reduce its emissions intensity by 25 percent from 2005 levels by 2020.43 At the 2015 conference in Paris (COP21), India agreed to further reduce its emissions intensity by 33–35 percent by 2030, again from 2005 levels.44

India is one of the few countries on course to meet its stated targets. According to a 2021 report by India’s environment ministry, “India’s climate action is widely acknowledged by independent, international assessments to be among the few that are compatible with the well below 2° Celsius warming target of the Paris Agreement.”45

Part of this shift toward a domestic climate change policy is due to India’s realization of its vulnerabilities to a changing climate. Official documents now highlight India’s susceptibility to climate change, and climate science plays a bigger role in international negotiations than in the past.46 Another reason for the shift is the evolving nature of international attitudes toward climate change responsibilities. Developed countries have sought to place the onus for reducing emissions more aggressively on large emerging economies, increasing India’s difficulty in maintaining a developing-country coalition that supports its position.47

This trend has been complemented by serious attempts by the Indian government to adopt more climate-friendly development policies. India’s energy intensity continues to reduce in line with its climate change targets.48 Forest cover in the country has increased, and the growth of renewable energy is outpacing that of nonrenewable energy.49

At the same time, India continues to adopt a tough position in climate negotiations. One of the country’s major areas of focus has been the lack of financing from developed countries for climate mitigation and adaptation. For example, in a 2019 report, the Indian government argued that in contrast to its significant needs, global finance flows to India were miniscule.50 The government explicitly tied its ability to meet its obligations under the Paris Agreement to climate financing by stating that India’s planned reductions hinged on the availability of international finance.

India has also raised issues with the skewed nature of climate finance flows, pointing out that while developing countries need funds that focus on adaptation, the bulk of climate finance continues to concentrate on mitigation activities.51 In a similar vein, the Indian government’s 2019 report went on to argue that the idea of net-zero emissions is a desirable global goal, but that the responsibility for reaching the aim by 2050 lies mainly with developed countries.

India’s Outlook on Globalization

In the 1990s and 2000s, India integrated rapidly with the world economy through trade, finance, and data flows. It was a time when the country’s economic, political, and strategic stature rose considerably on the basis of a dynamic and rapidly growing economy. Since the early 2010s, however, trade and financial integration have slowed. More recently, the Indian government has proposed steps to limit the free flow of data as well. India has also moved to tax foreign firms that do business in India, sometimes taking unilateral action.

At the same time, India has increased cooperation when it comes to climate action, albeit with assertiveness on the issue of climate finance. However, unless India’s economic capabilities begin to grow rapidly again, its action on climate change may not yield much improvement in the country’s standing in the world.

As India’s experience with globalization has become less comfortable, its stance toward globalism has also changed. India has become more skeptical of foreign firms in many sectors, not only for tax reasons, but also—as seen in the digital realm—for reasons of national interest. India is in the process of implementing and testing a variety of policy changes in these domains. The outcomes of these experiments may lead to different policy frameworks, but much will depend on the intentions and interpretations of those in power.


1 See the introduction to Kanakalatha Mukund, The World of the Tamil Merchant: Pioneers of International Trade (New Delhi: Penguin Books India, 2015).

2 David Clingingsmith and Jeffrey G. Williamson, “India’s Deindustrialization in the 18th and 19th Centuries,” Harvard University, August 2005.

3 Extracted from “Tariff Profiles,” World Trade Organization,

4 Kamalika Ghosh, “Production-Linked Incentive Scheme for 10 Sectors | The Story So Far,” Money Control, November 19, 2020,

5 Saon Ray and Smita Miglani, “India’s GVC Integration: An Analysis of Upgrading Efforts and Facilitation of Lead Firms,” Indian Council for Research on International Economic Relations, February 2020,

6 Sabyasachi Mitra, Abhijit Sen Gupta, and Atul Sanganeria, “Drivers and Benefits of Enhancing Participation in Global Value Chains: Lessons for India,” Asian Development Bank, December 2020,

7 Economic Outlook Database, Centre for Monitoring Indian Economy.

8 Henry Farrell and Abraham L. Newman, “Weaponized Interdependence: How Global Economic Networks Shape State Coercion,” International Security 44, no. 1 (2019): 42–79,

9 “DS541: India—Export Related Measures,” World Trade Organization,

10 K. J. M. Varma, “China Praises Narendra Modi’s Davos Speech Opposing Protectionism,” Mint, January 24, 2018,

11 Mushtaq H. Khan, “India’s Evolving Political Settlement and the Challenges of Sustaining Development,” SOAS University of London, November 2011,

12 Joanna Hewitt. “Could Restarting Agricultural Negotiations Save Doha?,” EastAsiaForum. July 7, 2021,

13 Asit Ranjan Mishra, “India Questions Legal Status of Ongoing Plurilateral Negotiations at WTO,” Mint, October 22, 2021,

14 Kirtika Suneja, “WTO Reforms: India Readies Counter to US, Set to Float Paper That Could Stir the Davos Pot,” Economic Times, January 24, 2019,

15 Mathias Lund Larsen, “China Will No Longer Be a Developing Country After 2023. Its Climate Actions Should Reflect That,” Diplomat, July 3, 2021,

16 Authors’ calculation using data from the Reserve Bank of India Bulletin, available at

17 The measure is based on T. N. Srinivasan, “Trends and Impacts of Real and Financial Globalization in the People’s Republic of China and India Since the 1980s,” Asian Development Review 30, no. 1 (2013): 1–30,

18 Sarwat Jahan and Daili Wang, “Capital Account Openness in Low-Income Developing Countries: Evidence From a New Database,” International Monetary Fund, December 23, 2016,

19 “Implementation and Effects of the G20 Financial Regulatory Reforms: 2020 Annual Report,” Financial Stability Board, November 13, 2020,

20 Rasmus Corlin Christensen, Martin Hearson, and Tovony Randriamanalina, “At the Table, Off the Menu? Assessing the Participation of Lower-Income Countries in Global Tax Negotiations,” Institute of Development Studies, December 2020, 36,

21 Suranjali Tandon, “The Multilateral Legal Instrument: A Developing Country Perspective,” National Institute of Public Finance and Policy, February 15, 2018,

22 “Proposal for Amendment of Rules for Profit Attribution to Permanent Establishment,” Committee to Examine the Issues Related to Profit Attribution to Permanent Establishment (PE) in India and Amendment of Rule 10 of Income-Tax Rules, 1962, Government of India, April 18, 2019,

23 Ruth Mason, “The Transformation of International Tax,” American Journal of International Law 114, no. 3 (2020): 353–402,

24 “Proposal for Addressing Tax Challenges Arising From Digitalisation,” G-24 Working Group on Tax Policy and International Tax Cooperation, January 17, 2019,

25 Allison Christians, “OECD Secretariat’s Unified Approach: How to Get Things on a Truly Equal Footing,” International Centre for Tax and Development, November 5, 2019,

26 Anshu Khanna, “India’s Abruptly Expanded Digital Tax,” Tax Notes, August 13, 2020,

27 Ibid.

28 “Proposal for Equalization Levy on Specified Transactions,” Committee on Taxation of E-Commerce, Government of India, February 2016,

29 “Proposal for Amendment,” Profit Attribution Committee.

30 “Growth Trajectory of Direct Tax Collection & Recent Direct Tax Reforms,” Government of India, June 7, 2020,

31 Christensen and Hearson, “The New Politics.”

32 “Digital Communications: The Force Multiplier in India’s Progress,” Telecom Regulatory Authority of India, May 31, 2021,

33 “Table No. 4: Statement on Sector-Wise / Year-Wise FDI Equity Inflows From January, 2000 to September, 2020,” Department for Promotion of Industry and Internal Trade, Government of India,

34 Polly Jean Harrison, “India Has Become One of the Biggest Fintech Markets in Both Asia and Globally,” Fintech Times, February 21, 2021,

35 “India’s Trillion-Dollar Digital Opportunity,” Ministry of Electronics & Information Technology, Government of India, May 24, 2019,

36 Abhijit Iyer-Mitra, “State Vs Social Media,” Open, June 4, 2021,

37 Asit Ranjan Mishra, “India Says No to Free Flow of Digital Data at G20 Meeting,” Mint, September 22, 2020,

38 Navroz K. Dubash and Neha B. Joseph, “The Institutionalisation of Climate Policy in India: Designing a Development-Focused, Co-Benefits Based Approach,” Centre for Policy Research, May 20, 2015,

39 See, for example, Dubash and Joseph, “The Institutionalisation of Climate Policy.” Also see Sandeep Sengupta, “India’s Engagement in Global Climate Negotiations From Rio to Paris,” in India in a Warming World: Integrating Climate Change and Development, ed. Navroz K. Dubash (Oxford: Oxford University Press, 2019), 114–141,

40 Sengupta, “India’s Engagement.” For more on India’s role, see also Antto Vihma, “India and the Global Climate Governance: Between Principles and Pragmatism,” The Journal of Environment & Development 20, no. 1 (2011): 69–94,

41 Dubash and Joseph, “The Institutionalisation.”

42 Sengupta, “India’s Engagement,” 124.

43 Dubash and Joseph, “The Institutionalisation.”

44 “The Road From Paris: India’s Progress Towards Its Climate Pledge,” Natural Resources Defense Council, September 2020,

45 “India: Third Biennial Update Report to the United Nations Framework Convention on Climate Change,” Ministry of Environment, Forest, and Climate Change, Government of India, 2021, Also see “Climate Transparency Report: Comparing G20 Climate Action and Responses to the COVID-19 Crisis,” Climate Transparency, 2020,

46 See, for example, R. Krishnan et al., “Assessment of Climate Change Over the Indian Region,” Ministry of Earth Sciences, Government of India, June 17, 2020,

47 Sengupta, “India’s Engagement.”

48 “Climate Summit for Enhanced Action: A Financial Perspective From India,” Climate Change Finance Unit, Government of India, September 17, 2019,

49 “India,” Ministry of Environment.

50 “Climate Summit for Enhanced Action,” Climate Change Finance Unit.

51 Barbara Buchner et al., “Global Landscape of Climate Finance 2019,” Climate Policy Initiative, November 7, 2019,