Pushkar Sohoni

For decades, the world followed a simple rule: follow the money. If a country could produce goods cheaper than others, it won the business. This was “Pure Economics” – driven by efficiency, low prices, and open markets.

But today, the rulebook has changed. World leaders are no longer guided only by price; they are guided by power. Whether it is a trade conflict between major economies or India’s push for “Make in India,” geopolitical strategy and national priorities increasingly shape economic decisions.

The Erosion of the Efficiency-First Paradigm

In the 1990s and early 2000s, globalization dominated economic thinking. The belief was simple: greater trade would bring prosperity and stability. India’s IT sector flourished under this logic, offering competitive services to global markets.

Today, this efficiency-first approach is weakening. The tensions between the U.S. and China illustrate this shift. Tariffs, technology restrictions, and supply chain controls are not merely economic tools they are strategic instruments. These actions are less about consumer prices and more about technological leadership and global influence.

How This Affects India

For India, this shift carries clear economic and strategic implications.

1)   Self-Reliance (Atmanirbhar Bharat): This is not solely an economic policy; it reflects strategic intent. Encouraging companies like Apple to manufacture in India supports job creation while also reducing dependence on concentrated supply chains.

2)   The Energy Challenge: The Russia–Ukraine conflict demonstrated how political events disrupt markets. Rising oil prices were influenced not just by supply dynamics but by geopolitical tensions. India’s response required balancing diplomatic relationships while securing affordable energy supplies.

3)   Friend-shoring: Trade decisions are increasingly shaped by strategic partnerships rather than cost efficiency alone. India’s strengthening ties with countries such as the UAE and alliances like the Quad highlight how economic relationships now intersect with security considerations.

The Power of the Story

Why is this happening? Because while data informs decisions, emotions often accelerate them.

Traditional economic debates relied heavily on models and statistics. Today, political messaging frequently frames economic choices through narratives:

1)   National Security: “We cannot use certain technologies due to security risks.”

2)   Employment Protection: “Domestic industries must be supported to safeguard livelihoods.”

3)   National Pride: Slogans such as “America First” or “Vocal for Local” resonate because they connect with identity and sentiment rather than numerical analysis.

As Robert Shiller’s concept of Narrative Economics suggests, economic outcomes are often influenced by widely circulating stories, beliefs, and perceptions. In a digital age, narratives spread faster, shaping public opinion and policy choices alike.

The Risk for the Common Citizen

While power-driven economics may strengthen national positioning, it introduces trade-offs.

Higher Prices: Protective measures, such as tariffs, may shield domestic industries but often increase costs for consumers.

Policy Distortions: Decisions shaped by political appeal rather than long-term efficiency can generate unintended economic consequences.

The Path Forward

India occupies a distinctive position in this evolving landscape. Its large domestic market provides both economic leverage and strategic influence. However, balancing national priorities with economic fundamentals remains essential.

“In this evolving landscape, policymakers face a delicate balancing act. While strategic autonomy and national security considerations are legitimate priorities, sustained economic growth ultimately depends on productivity, competitiveness, and consumer welfare. Power may shape economic decisions, but economic fundamentals will continue to determine long-term resilience.”