The global economy is no longer driven solely by markets. It is increasingly shaped by geopolitical rivalry. Trade flows are being redirected by political calculations; capital flows are guided by confidence rather than efficiency; and technology, while delivering unprecedented gains in productivity, has also become a strategic weapon. Together, these forces have created an increasingly uncertain and transactional world, one that neither respects nor depends on the rules that once underpinned the international order.
Geopolitics is now influencing economic decision-making in profound ways. As supply chains are reconfigured, energy security has become a cornerstone of national resilience. Financial systems and reserve currencies are growing more fragmented, while even multilateral institutions face mounting strategic tensions. The United States’ withdrawal from the United Nations Framework Convention on Climate Change and other global platforms reinforces the view that the traditional pillars of international coordination can no longer be taken for granted.
For middle powers, including India, these disruptions present both risks and opportunities. A more plurilateral world is emerging as established universal institutions lose relevance. Coalitions are becoming smaller, issue-specific and often temporary. Influence is no longer determined solely by economic size or military strength, but increasingly by the ability to convene partners, bridge divisions and shape global agendas. This is the kind of influence that countries such as India should seek to cultivate.
Reforming multilateralism begins with recognising that the old framework is becoming obsolete. If the United States continues to act as an unpredictable participant in international negotiations, alternative channels of cooperation will need to be strengthened. Several multilateral development institutions already operate with limited or indirect US influence, including the Asian Development Bank, the European Bank for Reconstruction and Development, the New Development Bank and the Asian Infrastructure Investment Bank.
These institutions provide a more pragmatic and less polarised space for international cooperation. Such collaboration is particularly urgent in climate policy, where transnational risks demand coordinated action even in the absence of universal consensus. As Canadian Prime Minister Mark Carney argued, the old order is over. Middle powers must have a seat at the table—not be on the menu.
“The world is unlikely to return to the cohesion of the past. Fragmentation will persist, but it does not have to lead to disorder.”
For India, this implies a major responsibility in building new coalitions among emerging markets and developing economies. In many respects, it represents a revival of the Cold War-era spirit of non-alignment, adapted to a world defined less by competing ideological blocs than by overlapping economic interests.
The Challenges Facing Middle Powers
India’s economic rise is unfolding within this fragmented global order. Its emergence as the world’s fourth-largest economy, supported by average annual growth of around 7% over the past decade, reflects macroeconomic stability as well as remarkable progress in infrastructure development and poverty reduction. Yet this is not a moment for complacency. Rather, it calls for strategic repositioning. India’s response to an increasingly unpredictable world offers valuable lessons for other middle powers confronting four common challenges that no nation can solve alone.
The first challenge stems from the growing intrusion of geopolitics into economic affairs, particularly energy markets. As the world’s third-largest oil consumer, India remains highly exposed to external shocks. To mitigate this vulnerability, the country has committed to achieving net-zero emissions by 2070 and installing 500 gigawatts of non-fossil fuel energy capacity by 2030. Renewable energy already accounts for more than half of its installed generating capacity.
India’s latest Nationally Determined Contributions are particularly ambitious at a time when several major emitters are retreating from their climate commitments and the erosion of global consensus is complicating international negotiations. Nevertheless, the economics of the energy transition remain a major obstacle. Developing economies require at least US$310 billion annually for climate adaptation, while current financing amounts to only US$26 billion.
This transition is taking place against a backdrop of unprecedented fiscal pressures in advanced economies. Emerging market economies are also experiencing elevated budget deficits, averaging approximately 5.5% of GDP. Achieving the next phase of green growth will require reconciling these imbalances through prudent fiscal management. Influence today depends not only on economic or military power, but also on sound macroeconomic governance.
Excess Capacity
The second challenge concerns changes in the structure of global manufacturing and the growing problem of excess industrial capacity. In 2023, China produced 1.019 billion metric tonnes of crude steel, while global excess steel capacity is projected to reach 644 million metric tonnes. Meanwhile, global solar photovoltaic manufacturing capacity is expected to exceed worldwide demand by nearly twofold.
These developments are reshaping international trade through tariffs, subsidies and industrial policies. India’s response has been to protect domestic industries against unfair competition while remaining integrated into global markets. A carefully calibrated strategy can shield the economy from rising protectionist pressures.
A third challenge is demographic divergence. Africa’s median age remains below 20, while India’s is under 30. This youthful labour surplus contrasts sharply with population decline across parts of East Asia and Europe. Although productivity gains may offset labour shortages, traditional attitudes towards orderly migration require fundamental reassessment.
The United Nations Global Commission on International Migration sought to promote a rational debate on the inevitability of migration from the Global South to the Global North. Managing these movements requires political wisdom and long-term vision, qualities that have too often been replaced by prejudice. To safeguard future stability, migration should be viewed not as a crisis but as a necessary and orderly response to global labour market imbalances. However, a young population becomes a competitive advantage only when supported by skills development and employment opportunities.
The fourth challenge is technological progress and the widening digital divide. Only 1% of Indians aged 14 to 18 have received formal skills training, while businesses are expected to require 1.25 million artificial intelligence professionals by 2027. Emerging economies must bridge this digital skills gap and harness AI to enhance productivity and promote broad-based development, rather than allowing it to become another instrument of surveillance and geopolitical conflict.
Addressing this challenge demands sustained investment in human capital, education, research and development. To secure a larger share of the US$877 billion in global foreign direct investment, developing economies must foster stable and attractive investment environments while ensuring that technological progress strengthens productivity without undermining macroeconomic stability or social equity.
The Way Forward
These interconnected challenges—and opportunities—will define the future of middle powers and of India itself. A resilient economy combined with strategic clarity must guide the way forward. Political stability and orderly reform remain essential.
This is where India’s role in redefining multilateralism becomes particularly significant. The traditional model of large universal institutions is increasingly giving way to smaller coalitions focused on specific issues. Fortunately, India is well positioned to operate across these different layers of global governance, as demonstrated most recently during its G20 presidency.
India’s experience as a large and diverse democracy gives it credibility among developing economies. Its economic scale provides influence, while its diplomatic tradition emphasises dialogue and consensus. Continued political stability further strengthens its position. Together, these attributes can help bridge fragmented blocs, shift attention from confrontation towards constructive cooperation among middle powers, and reaffirm the enduring relevance of the principles of non-alignment. Smaller and medium-sized powers have an important role to play in advancing this process.
The world is unlikely to regain the cohesion of previous decades. Fragmentation will remain, but it need not result in disorder. Within this evolving landscape, leading middle-income countries are uniquely positioned to play a constructive and meaningful role through bilateral engagement, multilateral institutions and independent initiatives.
The choices India makes today will shape not only its own future, but also the role of middle powers within the emerging global order. In a world where economics and geopolitics are increasingly intertwined, India’s ability to navigate these complexities through cooperation and inclusion will redefine the continuing relevance of the Global South. This is not merely an opportunity to adapt to change—it is a chance to help shape a world in which every nation has a meaningful seat at the table.
