How would the recent phenomena of protectionism and currency manipulations in world trade affect the macroeconomic stability of India?
How would the recent phenomena of protectionism and currency manipulations in world trade affect the macroeconomic stability of India?
Subject: Economy
India's macroeconomic stability faces significant challenges amid rising global protectionism and currency manipulations, as evidenced by the decline in agricultural exports from $53.2 billion to $48.8 billion in 2023-24.
Impact of Protectionism on India's Economy
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Trade Balance Effects: Export restrictions on key commodities like sugar, non-basmati rice, and wheat have directly impacted India's trade position and foreign exchange earnings.
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Sectoral Vulnerabilities: While some sectors like basmati rice and spices showed growth, overall protectionist measures have created market uncertainties and reduced export competitiveness.
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Global Value Chains: Protectionist policies disrupt India's integration into global value chains, affecting the Make in India initiative and manufacturing sector growth.
Currency Manipulation Implications
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Exchange Rate Volatility: The INR-USD exchange rate fluctuations (from 82.298 in May 2023 to projected 85-87 by 2025) impact import costs and export competitiveness.
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RBI's Intervention Strategy: The Reserve Bank of India maintains market stability through strategic interventions without targeting specific exchange rates.
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Foreign Investment Impact: Despite global uncertainties, India attracted USD 29.79 billion FDI during April-September 2024, demonstrating resilience.
Challenges and Opportunities
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Import Dependencies: Protectionism affects critical import supplies, potentially disrupting domestic production and price stability.
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Forex Management: Currency manipulations necessitate careful management of forex reserves to defend against speculative attacks.
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Policy Response: Implementation of Production Linked Incentive (PLI) schemes helps reduce import dependencies and boost domestic manufacturing.
Way Forward
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Trade Diversification: Exploring new markets through agreements like India-Middle East-Europe Economic Corridor (IMEC).
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Domestic Capacity Building: Strengthening local manufacturing through initiatives like Atmanirbhar Bharat.
The current global economic landscape demands a balanced approach between protecting domestic interests and maintaining international competitiveness. India's focus should be on building economic resilience through structural reforms and strategic trade partnerships while maintaining vigilance against external vulnerabilities. Success stories like the UPI system and Digital India initiative demonstrate India's capacity to innovate and adapt in challenging times.
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