QUES . What are the challenges before the Indian economy when the world is moving away from free trade and multilateralism to protectionism and bilateralism? How can these challenges be met? Answer in 150 words.10 marks. UPSC MAINS 2025. GS PAPER 3
HINTS:
Globalisation and multilateral trade regimes under the WTO since the 1990s, helped India integrate into world markets, fuelling growth in services and manufacturing. However, recent trends such as tariff wars, reshoring or inshoring of supply chains and weakening of WTO mechanisms reflect a global shift toward protectionism and bilateralism.
It poses significant challenges for India’s growth trajectory as nations prioritize bilateral arrangements over WTO based trade systems.
Challenges Before the Indian Economy due to Protectionism and Bilateralism
Export Vulnerability due to Market Access Barriers: Higher tariffs, stricter standards, and non-tariff barriers in key markets threaten Indian exports in textiles, pharmaceuticals, and gems sectors. For example, EU’s Carbon Border Adjustment Mechanism (CBAM) impacts steel-aluminum exports, while stricter standards reduce competitiveness.
Supply Chain Vulnerabilities due to Fragmentation of Global Value Chains (GVCs): Rising protectionism disrupts India’s integration into electronics, auto, and pharma supply chains. India’s import dependence for critical materials undermines the Make in India initiative’s effectiveness.
Erosion of Multilateral Frameworks: The weakening of multilateral dispute resolution mechanisms like that of WTO Appellate Body, leaves India with limited recourse against unfair trade actions. Developed nations are increasingly reverting to unilateral tariffs and bilateral pacts, weakening platforms where India can negotiate collectively.
Trade Deficit Concerns: Bilateral Free Trade Agreements have widened deficits, particularly with ASEAN partners, questioning the reciprocal benefits of such agreements. Bilateral trade deals often involve unequal bargaining power, compelling India to make concessions on tariffs, data, or investment.
Domestic Challenges Hampering Competitiveness: Domestic challenges such as limited productivity, high logistics cost and poor contingency planning cripple India’s ability to adapt quickly when global policy shocks occur.
Threat to Employment-intensive Sectors: Protectionism hits textiles, leather, and agriculture where India enjoys comparative advantage, threatening jobs and rural incomes.
Limited Technology Acquisition and Market Access: Declining FDI flows and stricter screening mechanisms in developed economies limit technology acquisition and global expansion opportunities. Digital trade rules, carbon border taxes, and supply-chain security norms limit India’s market access.
How can the Challenges Due to Protectionism and Bilateralism be met?
Diversification of Trade Partners and Markets: Deepen economic ties with Africa, Latin America, and the Global South. Strengthen regional groupings like BRICS, and BIMSTEC to reduce over-reliance on the West.
Building Alternative Supply Chains: Through partnerships with like-minded nations.
Pursue strategic FTAs: Negotiate balanced agreements with major blocs (EU, GCC) focusing on tariff reduction, mutual standards recognition, and services mobility.
Must read: Free Trade Agreement (FTA) : Benefits and Challenges
Calibrated Protectionism: Shield domestic industry while preparing it for competition. Use temporary tariffs and non-tariff barriers for infant industries and adopt WTO-compliant standards to manage imports.
Technology and sustainability alignment: Invest in green technology, carbon accounting, and digital trade frameworks to pre-empt protectionist measures like CBAM.
Strengthening Domestic Competitiveness: Boost productivity via PLI schemes, logistics upgrades, PM Gati Shakti, etc. Align exports with green/climate standards for competitiveness.
WTO reforms advocacy: Build coalitions with developing nations and collaborate with G20 to demand revival of dispute settlement and fairer agricultural trade rules through WTO reforms.
Shift in Export Basket: Moving beyond traditional textiles, gems and IT to electronics, pharmaceuticals and services exports.
Strategic Use of Industrial Policy: Develop self-reliance in sensitive sectors. Incentivise R&D and innovation, develop ecosystems in electronics, semiconductors, EVs, and green technologies, and promote ‘Make in India for the World’.
Conclusion
Protectionist trade policies have direct implications for India’s export-oriented growth strategy. As major economies, the U.S. in particular, turn inward, India must resist the temptation of reactionary protectionism and instead adopt a calibrated approach that balances domestic resilience with global competitiveness.
