Atmanirbharta and Alignment- India’s Balancing Act

In an era of sharpening geopolitical contestation, trade has emerged as a powerful instrument of strategic leverage rather than mere economic exchange. The interim India–US trade agreement reflects New Delhi’s pragmatic recalibration as strategic autonomy increasingly collides with energy security and market access. By balancing tariff relief with calibrated strategic alignment, India has sought to protect domestic economic interests without rupturing critical partnerships. This episode underscores how economic nationalism today must operate within the constraints of an increasingly transactional global order. 

What is Economic Nationalism?  

• About: Economic nationalism is an umbrella term for policies that emphasize domestic control of the economy, even if it requires state intervention or restricting global trade.  
  • At its core, it prioritizes the nation's interests above the "efficiency" of the global free market. 
  • While globalists argue that every country should do what it's best at (comparative advantage), economic nationalists argue that a country should be self-reliant to ensure national security and social stability. 
• Core Policy Mechanisms 
  • State Interventionism: The government plays a decisive role in directing investment toward strategic sectors (e.g., semiconductors, defense, or green energy) to ensure national sovereignty. 
  • Trade Barriers: Utilization of both tariff and non-tariff barriers (such as stringent licensing or technical standards) to prioritize domestic producers over foreign entities. 
  • Monetary Sovereignty: Occasionally, this includes capital controls or currency manipulation to maintain a competitive advantage in international exports. 
• Evolution of Economic Nationalism in India 
  • The Colonial Phase: The Foundation of Resistance 
    • Economic nationalism in India originated in the late 19th century as a response to British exploitation. It was an intellectual movement before it became a political one. 
    • The Drain Theory: Proposed by Dadabhai Naoroji, it argued that Britain was systematically siphoning wealth from India without any equivalent return. 
    • The Swadeshi Movement (1905): This was a practical application of economic nationalism.  
      • By boycotting foreign (British) cloth and promoting indigenous goods, leaders like Bal Gangadhar Tilak and Bipin Chandra Pal aimed to achieve Atma-shakti (self-reliance). 
• The Post-Independence Phase (1947–1991): State-Led Self-Reliance 
  • After 1947, the trauma of colonial exploitation led India to adopt a "Socialist-leaning" model of economic nationalism. The goal was to ensure that no foreign entity could ever control the Indian economy again. 
    • Import Substitution: High tariffs were placed on imports to protect "infant industries." 
    • The License Raj: A complex regulatory system where the state decided what was produced, by whom, and in what quantity. 
    • Public Sector Dominance: Critical sectors (Steel, Power, Banking) were reserved for the State to prevent private or foreign monopolies. 
    • The Critique: While this built a strong industrial base, it eventually led to the sluggish growth rate due to a lack of global competition and innovation. 
• The Modern Phase (2014–Present): Atmanirbhar Bharat 
  • Since 2014, India has transitioned to "Economic Nationalism 2.0." Unlike the pre-1991 era, this is not about closing doors to the world, but about engaging with the world from a position of strength. 
    • Production Linked Incentives (PLI): Instead of just banning imports, the government provides financial incentives to companies (both Indian and foreign) to manufacture within India under Atmanirbhar Bharat. 
    • Vocal for Local: A campaign to promote domestic brands and integrate local supply chains into the global market. 
    • Techno-Nationalism: India is increasingly asserting sovereignty over its digital assets.  
      • The Digital Personal Data Protection Act (2023) and the push for a domestic semiconductor ecosystem are prime examples of protecting national interests in the digital age. 
    • Strategic Trade Policy: India’s decision to opt out of the RCEP (Regional Comprehensive Economic Partnership) was a classic nationalist move to protect domestic dairy and MSME sectors from a flood of cheap Chinese imports. 

How is India Balancing Economic Nationalism with Strategic Alignment? 

• Atmanirbhar Bharat- From Crisis Management to Strategic Industrial Policy: The Atmanirbhar Bharat Abhiyan, launched in 2020, has evolved into a comprehensive "India-First" industrial strategy. 
  • It is not an isolationist move but a pursuit of "Resilient Interdependence," where India integrates with the global economy from a position of domestic strength rather than dependency. 
  • In the Union Budget 2026, the government topped up the Self-Reliant India Fund with an additional ₹2,000 crore to support risk capital for MSMEs. Furthermore, the PLI scheme has already catalyzed over ₹2 lakh crore in investments as of September 2025. 
• Trade Policy- From Global Interdependence to Selective Integration: India has moved away from mega-multilateral trade blocs that threaten domestic industry, opting instead for bilateral agreements with "trusted" democratic partners.  
  • This strategy minimizes exposure to non-market economies like China while securing high-value market access in the West. 
  • For instance, India stayed out of the 15-member RCEP in 2019 but concluded a landmark FTA with the European Union in February 2026 
  • Also, India has reduced or eliminated tariffs on selected US industrial and agricultural goods under the interim framework, yet it has avoided a comprehensive FTA that could expose politically sensitive sectors.  
    • US reciprocal tariffs were reduced from an effective 50% (including a 25% Russia-linked penalty) to 18%, restoring competitiveness to Indian sectors like textiles and chemicals. 
• Strategic Energy Diversification: Energy security remains central to India’s economic nationalism.  
  • In 2025, Russia supplied over 40% of India’s crude oil imports, helping contain inflation and stabilise growth.  
    • However, US punitive tariffs linked to Russian oil imports created economic pressure.  
  • India signalled gradual diversification toward US energy supplies rather than an abrupt shift, thus balancing geopolitical alignment with economic prudence. 
    • For instance, India indicated intent to purchase significant US energy supplies as part of the proposed $500 billion import plan over five years. 
• Digital and Techno-Nationalism: India is asserting "Digital Sovereignty" to ensure that the backbone of its modern economy-data is not controlled by foreign big-tech or adversarial states.  
  • This involves building indigenous "Digital Public Infrastructure" (DPI) while regulating foreign data flows. 
  • For instance, the Digital Personal Data Protection Act (2023) have strengthened data security and the launch of the India Semiconductor Mission has catalyzed local chip production. In 2025, India announced its first domestically produced chips. 
• Defense Indigenization- Balancing "Make in India" with Global Co-production: India is transitioning from being the world’s largest arms importer to a manufacturer by mandating high indigenous content while inviting foreign OEMs to set up shops locally.  
  • This creates a "dual-use" economy where defense exports fund domestic R&D, reducing the fiscal drain of imports. 
  • The "Year of Reforms 2025" has shifted the focus from simple assembly to co-development of jet engines and underwater technologies, ensuring that strategic assets are manufactured on Indian soil to prevent supply chokepoints during conflicts. 
  • For instance, Indigenous defense production reached a record ₹1.54 lakh crore in FY25. Also in terms of co-development, the BrahMos missile is a premier, high-speed, two-stage supersonic cruise missile developed jointly by India and Russia. 
• Critical Mineral Security-Securing the Green Transition Supply Chain: Recognizing that the "Green Revolution" depends on minerals controlled by a few nations, India is aggressively pursuing "Mineral Diplomacy" to secure its energy future.  
  • This involves domestic mining reforms paired with international alliances to bypass traditional bottlenecks. 
  • For instance, India is leveraging its membership in the Minerals Security Partnership (MSP) to secure long-term access to Lithium and Cobalt, while simultaneously launching "Rare Earth Corridors" at home to process these minerals. 
  • Also, the Union Budget 2026 announced Dedicated Rare Earth Corridors backed by a ₹7,280 crore Rare Earth Permanent Magnet (REPM) Manufacturing Scheme. 
• Financial Sovereignty- The "Rupeefication" of Global Trade: India is promoting the Internationalization of the Rupee (INR) to insulate its economy from "Dollar-shocks" and Western sanctions.  
  • This is not a "de-dollarization" crusade but a "de-risking" strategy to ensure trade continuity with diverse partners like Russia and the UAE. 
  • As of 2025, around 22 countries have operationalized Special Rupee Vostro Accounts (SRVAs) for direct trade settlement.  
    • Furthermore, the BRICS New Development Bank is set to issue its first Rupee-denominated bond by March 2026, signaling global institutional trust in the currency. 
• Transition from Doctrinal Strategic Autonomy to Transactional Autonomy: India’s traditional strategic autonomy doctrine emphasised equidistance among major powers.  
  • India has replaced the doctrine of "Strategic Hesitation" with "Strategic Pragmatism," where it acts as a "pole" in a multipolar world, choosing partners based on sectoral convergence rather than permanent alliances. 
  • For instance, participation in diverse platforms such as QUAD alongside continued engagement in BRICS reflects issue-based alignment. 

What are the Issues Arising Out of India’s Push Towards Economic Nationalism?  

• "Assembly-Led" Trade Deficit & Component Dependency: While the Production Linked Incentive (PLI) schemes have successfully relocated final assembly to India, they have paradoxically increased import dependence on China for intermediate components.  
  • This creates a " superficial self-reliance" where the value addition remains low, and supply chain vulnerabilities are merely shifted upstream rather than eliminated.  
  • For example, India’s electronics import profile reflects acute concentration risk, integrated circuit imports touched $5.46 billion in H1 2025, growing at 79% annually since 2017, with 88% sourced from China.  
• Investment Chilling Effect from Policy Unpredictability: Ad-hoc protectionist measures, such as the sudden licensing mandates for laptops and tablets, signal a return to the "License Raj," spooking long-term foreign investors who prize regulatory stability.  
  • This volatility forces global capital to adopt a "wait and watch" approach, dampening the "China Plus One" gains India hopes to capture.  
  • For instance, Net FDI inflows plunged 159% in August 2025 (year-on-year) as repatriation of capital exceeded new inflows, signaling investor caution despite high gross headline numbers. 
• Inflationary Shock to MSMEs from Input Tariffs: High customs duties on raw materials like steel and copper, intended to protect domestic primary producers, disproportionately crush the cost-competitiveness of downstream MSMEs.  
  • This "inverted duty structure" forces small exporters to price themselves out of global markets or operate on razor-thin margins, stifling the sector that employs the most people. 
  • For instance, in December 2025, India imposed a 11–12% three-year tariff on select steel imports to curb cheap Chinese shipments.  
    • While intended to protect domestic producers, it may increase input costs, weaken export competitiveness, trigger retaliation, and raise WTO compliance concerns. 
• The "Subsidy Burden" & Fiscal Slippage Risks: The massive fiscal outlay for PLI schemes across 14 sectors creates a long-term liability on the public exchequer without guaranteeing that firms will become globally competitive once subsidies end.  
  • This "picking winners" strategy risks creating "infant industries" that refuse to grow up, diverting funds from critical health and education infrastructure.  
  • The PLI disbursement target was expanded to ₹1.97 lakh crore, yet largely utilized by capital-intensive sectors, significantly contributing to a fiscal deficit that hovered 54.5% of the annual budget target for 2025-26. 
• Green Transition & Carbon Protectionism Clash: India's push for domestic solar module manufacturing (ALMM list) effectively blocked cheaper imports, slowing down the pace of renewable energy capacity addition needed to meet 2030 climate goals.  
  • By prioritizing industrial policy over climate urgency, the cost of the green transition has artificially spiked for domestic power developers. 
  • For instance, the prices of Indian solar cells are 1.5 to two times more than alternatives from China even after basic customs duty. 
• Retaliatory Vulnerability in a Fragmented World: As India deploys protectionist tools (QCOs, import bans), it invites reciprocal measures from trading partners, exposing its service sector exports (IT, Business Process) to retaliation.  
  • In a fragmenting global economy, being viewed as "protectionist" erodes the soft power India needs to position itself as a "Vishwaguru" or bridge-builder.  
  • In response to India's digital hardware curbs, the US triggered a Section 301 review in 2025, threatening tariffs on India's IT services exports. 
• Oligopolistic Market Concentration: Critics argue that economic nationalism tends to favor large domestic conglomerates ("National Champions") who have the capital to navigate complex compliance and capture subsidies, squeezing out smaller innovative players.  
  • This reduces domestic competition, leading to higher prices for Indian consumers and less incentive for firms to innovate efficiently.  
  • The top 20 business groups in India accounted for 70% of the profits of the listed corporate sector in 2024, signaling intense market concentration (Marcellus Investment Analysis 2025). 

What Measures can India Adopt to Balance Economic Nationalism and Strategic Alignment?   

• Institutionalizing "Friend-Shoring" Protocol Frameworks: India must establish formal "trusted geography" protocols that prioritize supply chain integration with politically aligned nations while retaining domestic core competencies.  
  • This involves creating legally binding "zones of trust" where tariff barriers are lowered exclusively for partners sharing democratic values and security standards.  
  • Such a framework allows India to maintain economic sovereignty over critical sectors like defense and energy while actively deepening market access for allies.  
    • This measure effectively operationalizes "de-risking" strategies by replacing broad globalization with targeted, high-trust regional economic integration. 
• Harmonized Foreign Investment Screening Mechanisms: India should develop interoperable "investment security" standards that rigorously scrutinize inbound capital for national security risks without stifling legitimate economic cooperation.  
  • By aligning screening criteria for sensitive technologies such as semiconductors, quantum computing, and biotechnology with strategic partners, countries can prevent adversarial state-backed entities from exploiting open markets.  
    • This creates a "security shield" around critical infrastructure while facilitating smoother capital flows among allied nations who trust each other’s regulatory vigilance. 
• Coordinated Industrial Subsidy Rationalization: To prevent a "subsidy race to the bottom" among allies, India must negotiate "green lane" industrial policy agreements that permit domestic subsidies only when they benefit the collective strategic resilience.  
  • It ensures that domestic manufacturing incentives, such as production-linked schemes, complement rather than cannibalize the industrial bases of strategic partners.  
  • This harmonization fosters a "cooperative autonomy" where domestic strength supports alliance stability. 
• Interoperable Digital Sovereignty Architectures: Developing shared standards for data governance and digital infrastructure is essential to balance national data privacy mandates with the need for cross-border intelligence and commercial flow.  
  • This measure entails creating "data trust corridors" where India with other nations agree on equivalent privacy and security protocols, allowing for the free movement of non-sensitive industrial data while strictly localizing sovereign citizen data.  
  • By decoupling commercial data integration from national security data protection, India can foster a unified digital economy without compromising their cyber-sovereignty or intelligence autonomy. 
• Minilateral Innovation Corridors with Sovereign Manufacturing Rights: India must pivot from broad multilateral trade deals to exclusive "Minilateral Technology Groupings" focused on sharing the high costs of pre-competitive R&D in sectors like 6G and fusion energy.  
  • The critical innovation here is a "distributive manufacturing agreement," where shared R&D results in guaranteed rights for each member to manufacture the final product domestically.  
  • This prevents the "innovation-production disconnect" where one ally invents and another manufactures, ensuring that every partner strengthens its own industrial base while sharing the burden of scientific discovery. 
• Maintaining Infrastructure Efficiency: To make economic nationalism viable, India is aggressively lowering the cost of doing business to match global standards.  
  • This ensures that domestic protectionism does not lead to "Zombie Industries" that are uncompetitive due to high local costs. 
  • The state is integrating digital trade systems with physical infrastructure to reduce "dwell times" at ports, making Indian exports as agile and reliable as those from established manufacturing hubs.

Conclusion

Balancing economic nationalism with strategic alignment requires a sophisticated shift from reactive protectionism to proactive, rules-based economic statecraft. By embedding security imperatives directly into trade logic, nations can secure their sovereign interests without sliding into isolationism. Ultimately, the goal is to build an economic architecture that is resilient enough to withstand geopolitical shocks yet open enough to foster prosperity. 

Drishti Mains Question Examine how India is recalibrating its strategic autonomy in response to the increasing weaponisation of trade and energy geopolitics.