7 Nov 2025 • 4 min read

The End of an Era: Is the U.S. Economic Model Losing Its Grip — and Can India Rise in the Vacuum?

For most of the post-war period, the United States didn’t just lead the global economy — it defined the terms of engagement. Its economic architecture, rooted in entrepreneurial freedom, global capital flows, and consumption-led growth, became the template for success. But today, those very pillars are under strain !

America’s economic rise was engineered through a powerful mix of capitalist freedom, financial innovation, and global arbitrage. Entrepreneurs flourished under a tax regime that allowed for minimal interference, and corporations used global tax havens to reinvest profit and scale efficiently. Simultaneously, free trade allowed the U.S. to offshore labor-intensive production while importing cheaper goods — creating a system where inflation was low, margins were high, and consumption became king.

The U.S. consumer, backed by deep credit markets, became the engine of global demand. Household consumption consistently made up ~70% of GDP, and the credit-to-GDP ratio rose above 250%, cementing a culture of borrowing over saving. This consumption wasn’t a bug — it was a feature, sustained by financial engineering, asset inflation, and the implicit belief that there would always be a buyer for U.S. debt.

And there was. Because the U.S. dollar wasn’t just another currency — it was the global default. The world needed dollars to trade oil, to stabilize their reserves, to conduct international business. This created a self-reinforcing demand cycle that allowed the U.S. to run persistent twin deficits — in trade and budget — without triggering investor flight. The Federal Reserve could print, Congress could spend, and markets — backed by global trust in the system — would continue to buy.

This was America’s exorbitant privilege.

But that era is fraying and fast !!!

⚠️ Cracks in the Foundation

The global consensus that underpinned U.S. dominance — open trade, dollar supremacy, and geopolitical neutrality in financial systems — is breaking.

Deglobalization is no longer a theory; it's a policy. From the CHIPS Act to tariff hikes and reshoring subsidies, the U.S. is trying to bring supply chains home — but this reverses decades of cost efficiency and opens the door to structural inflation.
The dollar has been weaponized. Sanctions, reserve freezes (as with Russia), and export controls are eroding trust in the dollar-based system. Countries that once held U.S. Treasuries as neutral safe assets are now seeking alternatives.
Global savings are being reallocated. Even before inflation concerns, foreign holdings of U.S. Treasuries had plateaued. Now, with deficits soaring and interest payments nearing unsustainable levels, questions about creditworthiness are emerging.

And just last week, Moody’s cut the outlook on U.S. debt, citing fiscal deterioration and governance instability. This isn’t a speculative blog or fringe commentary — it’s one of the big three rating agencies officially questioning the sustainability of the American model.

What was once unthinkable — a challenge to U.S. fiscal supremacy — is now mainstream discussion.

🇮🇳 India: Positioned at the Inflection Point

Amid this tectonic shift, one economy is quietly gathering momentum — India, now officially the 4th largest economy in the world, having overtaken Japan and Germany.

Unlike previous cycles where India missed the moment — due to hesitation, policy paralysis, or global irrelevance — this time feels different. The geopolitical, demographic, and digital winds are aligned in India’s favor.

The China+1 strategy is real, and India is no longer on the periphery.
India boasts the world’s largest working-age population, just as China, Europe, and Japan are aging out.
It has built digital public infrastructure (DPI) unmatched in scale or interoperability — UPI, Aadhaar, ONDC — which serve as rails for financial inclusion and innovation.
India has adopted a strategic neutrality in global geopolitics, trading with both the West and Russia, avoiding entanglement, and keeping its options open.

But this moment must be seized — not inherited.

🧭 What India Must Do to Lead

India cannot win simply by being in the right place at the right time. It must execute. Five focus areas stand out:

Logistics and infrastructure reform Reduce logistics cost. Enable seamless multimodal transport to become a manufacturing and export hub. I am pretty optimist here.
Ease of doing business Simplify regulatory approvals, digitize compliance, resolve land and labor issues. Capital flows where friction is lowest. This is in poor shape. Political will may be there but bureaucracy needs to give way.
Export-oriented manufacturing Build scale. Use the PLI scheme strategically. Focus on sectors where China is vulnerable and global appetite exists — electronics, semiconductors, green tech. This demands lot of attention.
Capital market depth and INR globalization Develop long-tenor corporate bond markets. Allow selective international trade settlement in INR. Make the rupee not just stable, but strategically usable. RBI and SEBI have done wonderful job so far and inspire lot of confidence.
Digital and soft power export India’s Digital Public Infrastructure (DPI) is now exportable. Countries in the Global South want these rails. This is not just diplomacy — it’s influence.

All five guns need to fire. I see lot of scope to get our aspiration and action in line. Its still not looking like a mission.

🌐 But Others Are Catching Up — Fast

India’s trajectory is promising, but it's not unfolding in isolation. A multipolar economic world doesn’t just create opportunity — it raises the bar.

🇸🇪 Nordic Nations are having a “Silicon Vallahalla” moment. Stockholm, Helsinki, and Copenhagen are emerging as deep-tech and green innovation hubs, backed by social trust, strong governance, and sustainable capital. Their startups are lean, mission-driven, and increasingly global in mindset.
🌍 Africa is undergoing a quiet digital revolution. Countries like Nigeria, Kenya, and Ghana are skipping legacy systems and building fintech-first economies. Mobile money adoption is deep, AI startups are sprouting, and demographic momentum is undeniable. Africa may not be scaling industrial GDP yet — but it's leapfrogging in digital value creation.
🇮🇩 Indonesia is reaping the rewards of political stability, a growing middle class, and natural resource leverage. With EV supply chains, nickel reserves, and a proactive digital policy, it's emerging as ASEAN’s economic anchor.

India’s scale is unmatched — but its lead is not guaranteed. These regions are not just playing catch-up. They're leapfrogging.

The new global race isn’t just about GDP growth. It’s about relevance, credibility, and shaping the rules of the game. India’s moment has arrived — but it must run faster, because others are already sprinting.