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? upsc mains 2025 gs3 model answers

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?

Introduction

The global trading order, once guided by free trade and multilateralism under WTO, is increasingly witnessing a shift towards protectionism, bilateral trade deals, and economic nationalism. For a large emerging economy like India, which is deeply integrated with global supply chains, this transition poses multiple challenges.

 

Challenges Before the Indian Economy

1. Export Competitiveness at Risk

• Rising tariffs, non-tariff barriers, and "friend-shoring" policies by the US and EU restrict market access for Indian goods.
• Example: Carbon Border Adjustment Mechanism (CBAM) of the EU threatens India’s steel and aluminum exports.

2. Marginalisation in Global Trade Rules

• Weakening of WTO dispute settlement mechanisms reduces India’s ability to contest unfair trade barriers.
• Bilateral agreements among major economies (e.g., RCEP without India) risk India’s exclusion from regional value chains.

3. Pressure on Domestic Industries

• Global protectionism encourages subsidies and industrial policies (like US Inflation Reduction Act, EU Green Deal), which distort competition.
• Indian MSMEs face disadvantage due to lower state support.

4. Supply Chain Vulnerabilities

• “China+1” strategy of Western economies can benefit India, but high logistics costs, regulatory bottlenecks, and infrastructure gaps limit competitiveness.

5. Strategic Autonomy Dilemma

• Bilateralism often comes with strategic conditions (e.g., digital trade clauses, data flow restrictions) that may constrain India’s policy space.

 

How These Challenges Can Be Met

1. Diversifying Trade Partnerships

• Conclude balanced FTAs (UK, EU, Gulf states) with adequate safeguards for domestic industry.
• Deepen engagement with Global South through South-South cooperation.

2. Boosting Domestic Competitiveness

• Invest in infrastructure (Gati Shakti, Bharatmala, Sagarmala).
• Support MSMEs with technology, credit, and skill development.
• Push for PLI schemes in sunrise sectors like semiconductors, EVs, green hydrogen.

3. Strengthening Multilateral Role

• Lead coalitions in WTO to push back against unilateral trade measures.
• Use forums like G20, BRICS, IPEF to shape inclusive trade rules.

4. Green and Digital Readiness

• Develop low-carbon technologies to counter trade barriers like CBAM.
• Frame data and digital trade policies balancing sovereignty with global integration.

5. Resilient Supply Chains

• Promote Make in India + Make for World strategy.
• Collaborate with Quad and Indo-Pacific partners on resilient value chains.

 

Conclusion

As the world tilts towards protectionism and bilateralism, India must adopt a dual strategy: safeguarding its domestic industries while actively engaging in new trade arrangements. By enhancing competitiveness, leveraging demographic advantages, and shaping fair global trade rules, India can turn these challenges into opportunities for sustained and inclusive growth.

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