Mains Daily Question
Feb. 1, 2024
Q1. How would the protectionism measures and currency manipulations in world trade affect the macroeconomic stability of India?(10M, 150W).
|
Approach Introduction: Type 1: Define protectionism and currency manipulation, providing a brief context on their prevalence in world trade. Type 2: Provide a historical overview of India's engagement with international trade and its macroeconomic stability. Body: Heading 1: Impact of Protectionism Measures on India Heading 2: Impact of Currency Manipulations on India Conclusion: Type 1: Assess the overall macroeconomic stability of India in the face of protectionism and currency manipulations, suggesting potential strategies for mitigating adverse effects. Type 2: Conclude with policy recommendations or measures that India could adopt to navigate challenges posed by protectionist measures and currency manipulations in world trade. |
Answer: Protectionism refers to government policies aimed at favoring domestic industries and restricting imports. The rise of nationalism and populism in recent years has led to an increase in protectionist measures, particularly in developed countries. On the other hand, currency manipulation involves governments intervening in the foreign exchange market to influence the value of their currency.
Impact of Protectionism Measures on India’s Macroeconomic Stability:
- Higher import costs: Tariffs on agricultural produce like pulses inflate prices for Indian consumers, impacting their purchasing power.
- Reduced export opportunities: Retaliatory tariffs by trading partners like the US on Indian steel and IT exports shrink market access, hampering job creation and economic growth.
- Slower global trade growth: which dampens trade flows, reducing demand for Indian exports like textiles and pharmaceuticals.
- Investment uncertainty: Trade wars create instability, discouraging foreign investment in India's manufacturing and infrastructure sectors.
- Missed technological advancements: Limited access to imported machinery and technology hinders India's progress in sectors like renewable energy and advanced manufacturing.
Impact of Currency Manipulations on India’s Macroeconomic Stability:
- Reduced Exports: A weaker currency in trading partner countries makes their exports cheaper, hurting Indian producers competing in the same markets. Ex: China weakening its Yuan, making Chinese textiles cheaper globally.
- Import Surge: Cheap foreign currency makes imports more affordable, potentially squeezing out domestic industries.
- Trade Deficit Widening: Increased imports and stagnant exports widen India's trade deficit, straining foreign exchange reserves and impacting currency stability.
- Job Losses: Reduced exports and domestic production due to competition lead to job losses in export-oriented and import-competing sectors in India.
- Investment Uncertainty: Currency manipulation creates market volatility and uncertainty, also discouraging foreign investment in India, which hinders economic growth.
India empowers exporters through schemes like rebate of taxes, cheap credit, infrastructure upgrades, market access support, etc., aiming to fuel export growth and global competitiveness. India can further navigate trade turbulence by diversifying trade partners, focusing on regional pacts and untapped markets.
