Model Answer

Introduction

Protectionism refers to the economic policy of restraining trade between countries through tariffs, quotas, and regulations, while globalization is the process of increased interconnectedness and interdependence among nations. In recent years, protectionist sentiments have surged globally, affecting emerging economies like India, which strives for sustainable growth amidst these challenges.

Implications of Protectionism for India

Rising protectionism poses significant challenges for India’s economic growth. Firstly, it limits Indian exports by imposing tariffs and subsidies that disadvantage sectors such as textiles and clean energy. For instance, the U.S. Inflation Reduction Act has created barriers for Indian exporters, leading to a decrease in merchandise exports, which fell to $432 billion in 2023.

Moreover, supply chain disruptions are evident, particularly in the electronics sector, where the U.S.-China tensions have adversely impacted India’s semiconductor ambitions. The reliance on imports for critical components makes India vulnerable to global trade fluctuations.

Micro, Small, and Medium Enterprises (MSMEs) also suffer from reduced demand due to protectionist barriers in developed markets, threatening employment and innovation. Furthermore, decreasing Foreign Direct Investment (FDI) inflows, which dropped by 43% in 2023, reflect investor apprehensions in a protectionist climate.

Atmanirbhar Bharat

India’s Atmanirbhar Bharat initiative aims to promote self-reliance and enhance domestic manufacturing capabilities. While it seeks to build a resilient economy, critics argue that it may lean towards protectionism, as seen in increased tariffs and the cautious approach towards Free Trade Agreements (FTAs).

However, the initiative also emphasizes global competitiveness through the Production-Linked Incentive (PLI) scheme, which incentivizes local production in sectors like electronics and pharmaceuticals.

Measures to Balance Protectionism and Globalization

To navigate the challenges posed by protectionism, India can adopt several measures:

1. Strategic Trade Partnerships: Engage in carefully negotiated FTAs that provide mutual benefits while protecting sensitive sectors. For example, the India-Australia Economic Cooperation and Trade Agreement aims to reduce tariffs in textiles.
2. Selective Liberalization: Identify sectors where liberalization can enhance competitiveness, such as electronics, while maintaining safeguards for nascent industries.
3. Building Resilient Supply Chains: Diversify supply chains to minimize over-reliance on single nations, adopting the “China+1” strategy in critical sectors like pharmaceuticals.
4. Enhancing Infrastructure: Invest in logistics and innovation to improve the competitiveness of Indian industries, aligning with global benchmarks.
5. Multilateral Engagement: Actively participate in reforming institutions like the WTO to address trade disputes and promote fair trade practices, ensuring a level playing field.

Conclusion

In conclusion, while protectionism presents substantial challenges for India, it also offers an opportunity for strategic reorientation. By balancing self-reliance with global competitiveness, India can effectively navigate the complexities of a protectionist world, ensuring sustainable economic growth and development.