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Geo-economic fragmentation refers to a policy-driven reversal of global economic integration, increasingly shaped by geopolitical alignments. It signifies a shift from globalization to strategically-driven economic blocs, where nations prioritize political alliances over market efficiency.

Key Characteristics

• Emergence of friend-shoring, re-shoring, and economic nationalism.
• Fragmentation of trade, capital flows, FDI, and migration.
• Retreat from multilateralism, with institutions like the WTO and IMF under stress.
• Strategic use of environmental, labor, and social standards by developed countries to impose uniform regulations, causing tensions.

Globalization to Fragmentation: Statistical Evidence

• Trade-to-GDP Ratio: Increased from 39% (1980) to 60% (2012); now threatened by rising protectionism.
• FDI Inflows: Rose from $54 billion (1980) to $1.5 trillion (2019); now increasingly concentrated among like-minded countries.
• Global Economy: Expanded from $11 trillion (1980) to over $100 trillion (2022).
• Trade Restrictions (WTO Report):
  • 2023–24: 169 new measures covering $887.7 billion in trade.
  • 2022–23: Covered $337.1 billion — shows a dramatic rise in protectionism.
• Over 24,000 new trade and investment restrictions imposed globally between 2020–24.

IMF on Costs of GEF

• Trade fragmentation could cause 0.2% to 7% GDP losses, especially for developing countries.
• Current fragmentation is more costly than Cold War era, as trade now constitutes 45% of global GDP (vs. 16% then).
• Less trade = less knowledge diffusion, innovation, and productivity gains.

Strategic Impacts: Global Supply Chains

China’s Dominance

• 80% of global battery manufacturing.
• 80% of solar panel components.
• 60% of wind turbine capacity.
• 70% of global rare earth mineral processing.
• Dominates EV supply chains, critical mineral refining, and clean energy manufacturing.

FDI Realignment

• FDI is increasingly relocating from China to India, Vietnam, Mexico, etc.
• Friend-shoring reduces capital access for emerging markets.
• Emerging economies face reduced FDI, slower growth, and technological decoupling.

India’s Strategic Response: Deregulation and Internal Growth

Policy Recommendations (Economic Survey 2024–25)

• Amplify deregulation to lower compliance costs and boost entrepreneurship.
• Empower SMEs to withstand global shocks and strengthen domestic manufacturing.
• Encourage inter-state learning for best practices in economic governance.
• Redouble efforts to boost exports and foreign investment amidst global volatility.

Rationale

• With the decline of global cooperation, internal engines of growth become crucial.
• Deregulation can unleash innovation, enhance productivity, and ensure resilient growth.
• India's response must be strategic, systematic, and state-inclusive to capitalize on this global transition.