Answer: 

Introduction:

Protectionism means the use of tariff and non-tariff barriers to protect the local industry against foreign competition. For instance, U.S.A. had placed 25% tariffs on all steel imports, and 10% on aluminium imports.

Currency Manipulation occurs when a central bank keeps buying dollars to create artificial scarcity of dollars in the forex markets thereby causing weakening of the local currency. This helps to boost the country’s exports.

Both protectionism as well as currency manipulations are considered as trade distortion practices and are counterproductive to global free trade. In 2018-19, the global economy witnessed a spurt in both of these phenomena in global trade.

Body:

Impact of Protectionism on India:

• Some exports reduce: Protectionism in any global market affects the demand of Indian exports. This is seen especially in the textile, pharmaceutical, gems-jewellery and service sector.
• More opportunities in some sectors: Chinese tariffs on USA have created opportunities for India to export its soyabean, cars, medical equipment to China. Similarly, Chinese protectionist measures have ensured that countries look out for other potential trade partners and India remains the top contender in most sectors.
• Reduced economic growth: Protectionism leads to increased import costs as manufacturers and producers have to pay more for equipment, commodities, and intermediate products from foreign markets. This could lead to an increase in inflation and decline in real GDP.
• Increase import costs: The intermediate goods that form part of the global supply chain become more expensive because of protectionism. This leads to widening CAD. Higher CAD further puts the rupee under pressure and raises the cost of overseas borrowing.

Impact of Currency manipulation:

• Impact on exports: Theoretically, weakening of Indian rupee is supposed to help the Indian exports by boosting demand of (cheaper) Indian products abroad. But this positive effect is offset due to ongoing protectionism and much weaker currencies in competing markets.
• Volatility in foreign exchange markets: Currency manipulations could lead to greater volatility in foreign exchange markets, which could impact India’s foreign currency reserves and balance of payments.

Conclusion:

Protectionism has a mixed impact on Indian macroeconomic stability because while it helped boost Indian exports in some sectors (seafood & soybean), it has harmed the other sectors whereas currency manipulation has had a negative impact on the Indian economy. The impact is proof of how global integration of the economy has its own costs. The Indian economy must learn to deal with these shocks by building some level of self-reliance which can be used productively to counter such instances in the future.

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