The rising protectionism and currency manipulations have disrupted global trade flows and have direct implications for India’s growth, inflation, fiscal balance, and external vulnerability.
Tools of Protectionism
Tariffs
Quotas
Import Licensing
Sanctions
Exchange Controls
Industrial Subsidies
Impact of Protectionism on Macroeconomic Stability of India
Export Slowdown due to high tariffs. Eg: US protectionism under Section 232 hurt India’s steel exports.
Supply Chain Disruptions lead to higher Production Costs. Eg- higher oil prices after Israel-Palestine conflict
Imported Inflation due to barriers on food, energy and intermediate goods. Eg: Indonesia palm oil ban.
Weak Employment in Export-oriented Sectors – Eg: Fall in European demand hit India’s textile and leather clusters.
Lower FDI Inflows – Uncertain trade regimes discourage long-term investments. Eg- Apple cancelling plant in India after Trump threat.
Impact of Currency Manipulations on Macroeconomic Stability
Widening Trade Deficit – Undervalued currencies make their exports cheaper. Eg- China’s managed yuan
Rupee Volatility creates monetary Policy Challenges. Eg: Yen depreciation in 2023-24 triggered pressure on Asian currencies including INR.
Higher Inflation and BoP Pressure – Eg: INR touching 83-84 per USD raised petroleum import bills.
Capital Outflows due to dollar strengthening. Eg: 2022-24 saw FPI outflows during phases of aggressive US Fed tightening.
Pressure on Forex Reserves – Eg: RBI sold USD in 2022-23 to stabilise INR, reducing reserves temporarily.
Opportunities for India Amid Protectionism & Currency Politics
China+1 Advantage in electronics, chemicals, renewables. Eg- Mobile exports crossed USD 11 bn in 2023-24.
Boost Make in India to build self-reliant supply chains. Eg: PLI schemes in semiconductors, textiles, solar modules.
Diversification of Trade Partners – Eg- Recent FTA with UK
Strategic Attractiveness as a Stable Market – Amid volatile currencies and geo-economic blocs, India is seen as a stable investment destination.
Promoting Rupee Trade Mechanisms – Eg- INR invoicing and Vostro accounts.
Opportunity to Lead on Fair Trade Norms in WTO, G20 on currency transparency and non-tariff barriers.
Way Forward
Enhance R&D (2.5% of GDP), reduce logistics costs (PM Gati Shakti), and expand PLI schemes to boost manufacturing resilience.
Accelerate FTAs with EU, GCC to reduce over-dependence on a few partners.
Strengthen FOREX buffers and expand rupee trade settlement
Encourage domestic production of critical inputs (electronics, APIs, green tech) to reduce vulnerability to global shocks.
Scale IT, fintech, health tourism, education services to offset goods-trade shocks from rising protectionism.
By strengthening domestic competitiveness, India can position itself as a reliable, rules-based and resilient player in the evolving global economic order.