As global trade tensions and automation reshape economic policies, emerging economies like India face critical challenges due to rising protectionism across the world.
Introduction
The global economic order is witnessing a shift as protectionism gains traction amidst trade tensions, technological disruptions, and geopolitical rivalries. For India, balancing self-reliance with global competitiveness has become pivotal. While policies like Atmanirbhar Bharat aim to strengthen domestic industries, the country must address the challenges posed by protectionism, including disrupted supply chains, reduced export competitiveness, and rising trade barriers.
Factors Driving Protectionism in a Globalized World
Economic Nationalism and Reshoring Industries
Economic nationalism encourages nations to prioritize domestic production to revive industries and protect jobs.
The U.S. Inflation Reduction Act (2022) subsidizes domestic green technology, disadvantaging imports.
The EU’s Critical Raw Materials Act (2023) aims to reduce import dependency, particularly in clean energy sectors.
Geopolitical Rivalries and Decoupling
U.S.-China tensions have led to strategic decoupling, affecting critical industries like semiconductors.
In 2023, the U.S. restricted China’s access to advanced semiconductor technology, while China imposed export restrictions on rare minerals like gallium.
Supply Chain Vulnerabilities Exposed by COVID-19
The pandemic highlighted over-reliance on global supply chains, prompting localized production for essential goods.
Nations adopted "China+1" strategies to diversify supply chains, mitigating risks from single-source dependency.
Environmental and Climate Concerns
Protectionist policies often leverage environmental concerns, such as the EU’s Carbon Border Adjustment Mechanism (CBAM).
CBAM imposes tariffs on imports with higher carbon footprints, impacting exports from developing countries, including India.
Technological Dominance and Digital Protectionism
Nations impose data localization rules and intellectual property restrictions to foster domestic digital ecosystems.
India’s data localization policy (2022) mandates firms to store data domestically, aiming to strengthen national security.
Challenges for India Amidst Rising Protectionism
Export Competitiveness and Market Access
Tariffs and subsidies in developed nations disadvantage Indian exports, especially in textiles and clean energy.
Merchandise exports in 2023 stood at $432 billion, a 5% decline from 2022.
Supply Chain Disruptions
Global tensions, particularly in semiconductors, disrupt India’s electronics and EV industries.
Over $12 billion worth of electronic imports from China highlight vulnerabilities in critical supply chains.
Impact on MSMEs
Rising tariffs in key markets like the EU undermine Indian MSMEs, particularly in sectors like steel and cement.
CBAM is expected to impose additional costs on India’s steel exports to Europe, reducing competitiveness.
Inflationary Pressures
Import restrictions in commodities like palm oil and fertilizers lead to domestic price surges.
India faced inflationary pressures due to palm oil export bans by Indonesia and fertilizer restrictions by Belarus.
Reduced FDI Inflows
Trade barriers create uncertainty, discouraging foreign investment in India.
FDI inflows dropped by 43% in 2023, signaling investor caution amidst rising global protectionism.
Is Atmanirbhar Bharat a Form of Protectionism?
Arguments Supporting the Claim
Increased Tariffs and Import Restrictions
India has significantly raised import duties on various goods, such as electronics, solar panels, and toys, under the Atmanirbhar Bharat initiative to safeguard domestic industries.
For instance, the Basic Customs Duty (BCD) on solar PV modules was increased from 14.5% in 2021 to 40% in 2022, while PV cells saw a hike to 25%.
Production-Linked Incentive (PLI) Scheme
The PLI scheme encourages domestic manufacturing across sectors like electronics, pharmaceuticals, and semiconductors, which some view as a form of indirect protectionism.
The government has allocated ₹1.97 lakh crore across 14 sectors to boost domestic production and reduce reliance on imports.
Withdrawal from Free Trade Agreements (FTAs)
India has taken a cautious stance on FTAs, withdrawing from the Regional Comprehensive Economic Partnership (RCEP) in 2019 due to concerns over import surges.
While aligned with the Atmanirbhar Bharat vision, this decision potentially limits India's access to key export markets.
Promotion of Domestic Industry Over Imports
Policies under Atmanirbhar Bharat emphasize substituting imports with locally produced goods, especially in critical sectors like defense and electronics.
The "Make in India" initiative, a core aspect of Atmanirbhar Bharat, further underscores this approach.
Sector-Specific Protection Measures
Certain industries have been afforded protection through measures like anti-dumping duties and import quotas to shield domestic players from global competition.
Counter Arguments
Global Competitiveness Through Domestic Capacity Building
The initiative aims to make India a global manufacturing hub by enhancing domestic capacity rather than isolating itself.
For example, India achieved ₹90,000 crore in mobile exports in FY 2023, showcasing its integration into global value chains.
Strategic Resilience Over Isolation
The focus on self-reliance in sectors like semiconductors and defense is motivated by geopolitical risks and supply chain vulnerabilities rather than pure protectionism.
Selective Liberalization in Trade Agreements
India continues to negotiate and sign trade agreements, such as the India-Australia Economic Cooperation and Trade Agreement (ECTA) and Comprehensive Economic Partnership Agreement (CEPA) with the UAE.
Ongoing discussions with the UK and the EU reflect India’s balanced approach to integrating with global markets.
Focus on Export Promotion
The PLI scheme incentivizes domestic production for export markets, not just for meeting local demand.
Mobile and electronics sectors have seen exponential export growth under this framework.
Alignment with Global Sustainability Goals
Investments in renewable energy and green technology under Atmanirbhar Bharat position India to compete in global markets aligned with sustainability trends.
Initiatives like the National Green Hydrogen Mission highlight India's outward-facing strategy.
Measures to Balance Protectionism with Globalization
Strengthen Trade Partnerships
Negotiate FTAs with reciprocal benefits, such as tariff reductions in textiles while protecting vulnerable sectors like agriculture.
Build Resilient Supply Chains
Expand the "China+1" strategy to pharmaceuticals, renewable energy, and electronics to reduce dependency on single-source imports.
Enhance Domestic Infrastructure
Invest in logistics and innovation ecosystems to boost global competitiveness (e.g., PM Gati Shakti initiative to reduce logistics costs).
Sector-Specific Safeguards
Impose anti-dumping duties for vulnerable sectors while liberalizing others to encourage global integration.
Focus on Digital and Services Trade
Leverage strengths in IT and digital services, fostering global collaborations to mitigate protectionist barriers.
Conclusion
India stands at a crossroads where rising protectionism poses challenges to its economic aspirations. While initiatives like Atmanirbhar Bharat reflect the country’s intent to strengthen domestic industries, they must not isolate India from global trade opportunities. By adopting a balanced approach of selective liberalization, resilient supply chains, and targeted infrastructure development, India can navigate the complexities of protectionism while positioning itself as a global economic leader.
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