NEW DELHI, June 6: Governments across the world are increasingly turning to industrial policy to strengthen strategic sectors, secure supply chains and boost economic resilience in the face of geopolitical and economic shocks, but the success of such interventions remains far from guaranteed, according to the International Monetary Fund (IMF).
In a recent analysis, the IMF noted that industrial policy – government measures aimed at supporting specific industries and firms – has witnessed a sharp resurgence since the COVID-19 pandemic and has accelerated further amid growing geopolitical tensions and recent conflicts in the Middle East.
The Fund said the number of industrial policy interventions introduced globally last year was 2.5 times higher than the average seen before the pandemic.
According to the IMF, governments are increasingly using targeted support measures not only to improve competitiveness and address climate challenges but also to enhance supply-chain resilience, strengthen national security and reduce dependence on geopolitical rivals. This marks a significant shift in the objectives of industrial policy compared to the post-2008 period.
The report observed that more than 52,000 industrial policy interventions have been recorded across 75 countries since 2009, highlighting the growing role of governments in shaping economic outcomes and strategic industries.
However, the IMF cautioned that while industrial policies can deliver benefits, their impact is often modest and temporary unless they are carefully designed and effectively implemented. Research conducted by the Fund found that targeted sectors generally experience improved competitiveness, but the gains tend to be short-lived and are concentrated in industries that are already competitive.
The analysis found that firm-level subsidies often encourage capital investment, but improvements in productivity and output frequently fade after a few years. Export incentives, meanwhile, have shown limited impact on overall firm performance.
The IMF identified some areas where industrial policy has produced more durable results. Measures supporting the green transition, climate objectives and supply-chain resilience have shown stronger and longer-lasting gains. Policies targeting sectors affected by significant market distortions also tend to generate larger economic benefits.
Despite the renewed popularity of industrial policy, the IMF argued that broader structural reforms often generate far greater economic gains. Improvements in institutions, regulation and financial systems can raise output in inefficient industries by as much as 10 per cent in the medium term-around five times the average boost associated with industrial policy interventions.
The Fund also warned of potential global spillover effects as countries increasingly compete through subsidies and support programmes. Such actions can trigger subsidy races and resource misallocation, ultimately reducing overall economic efficiency and straining international cooperation.
The IMF concluded that industrial policy can play a constructive role in addressing market failures and supporting strategic priorities, but its effectiveness depends heavily on policy design, institutional quality, sound macroeconomic fundamentals and international coordination. Policymakers, it said, must balance the desire for economic resilience and strategic autonomy with the risks of inefficiency, rising fiscal costs and global market distortions. (UNI )
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