India preparedness against deglobalisation and protectionism
Source:The Hindu ↗
Why It Matters
Deglobalisation is a critical macroeconomic trend reshaping global trade. UPSC frequently tests the implications of protectionism and trade wars on the Indian economy, as well as the efficacy of domestic policies like PLI and Atmanirbhar Bharat in countering these global headwinds.
Summary
The article analyzes India's readiness to navigate an era of deglobalization, characterized by rising protectionism, geopolitical fragmentation, and the decline of multilateral trade regimes like the WTO. It evaluates India's strategic responses, such as the Atmanirbhar Bharat initiative and Production-Linked Incentive (PLI) schemes, which aim to build domestic supply chain resilience and enhance self-reliance. While acknowledging these efforts, the discussion explores the structural economic challenges India faces in pivoting from a highly integrated global value chain to an environment increasingly dominated by bilateralism, tariff barriers, and reshoring.
Key Points
- The global economic paradigm is shifting away from free trade and multilateralism toward deglobalisation, protectionism, and bilateralism.
- A crisis in multilateral institutions like the WTO has accelerated geopolitical fragmentation and the onset of trade wars.
- India is proactively mitigating supply chain vulnerabilities through self-reliance initiatives, notably Atmanirbhar Bharat and Production-Linked Incentive (PLI) schemes.
- Strengthening domestic manufacturing capabilities is essential to buffer the Indian economy against disruptions in global value chains.
- Sustaining economic growth in an era of reshoring requires deep structural reforms to enhance export competitiveness and navigate tariff barriers.
Important Terms
Atmanirbhar Bharat
A 2020 policy vision aiming to make India self-reliant through five pillars: Economy, Infrastructure, Systems, Vibrant Demography, and Demand. It focuses on boosting local manufacturing and reducing import dependency without seeking isolationism.
UPSC context
GS Paper 3 (Economy); core to questions on self-reliance, industrial growth, and post-pandemic economic recovery.
Production-Linked Incentive (PLI) scheme
A performance-based incentive scheme providing financial rewards to companies based on incremental sales from products manufactured in India. It targets 14 strategic sectors to enhance domestic manufacturing and global export capacity.
UPSC context
GS Paper 3 (Economic Development); tests industrial policy, "Make in India," and electronics manufacturing competitiveness.
World Trade Organization (WTO)
The sole global international organization dealing with the rules of trade between nations. It facilitates negotiations, ensures agreement compliance, and operates a dispute settlement mechanism to maintain a rules-based trading system.
UPSC context
GS Paper 2 (International Relations); critical for multilateralism, trade disputes, and India's global trade posture.
Deglobalisation
The process of declining economic integration and interdependence between nations. It is marked by reduced trade volumes, a shift toward protectionism, and the fragmentation of global value chains.
UPSC context
GS Paper 1 & 3; tests understanding of shifting global economic orders and their impact on India's growth.
Supply Chain Resilience
The ability of a supply chain to endure and quickly recover from shocks. Strategies include diversifying suppliers, reshoring production, and reducing dependence on single nations (e.g., China Plus One strategy).
UPSC context
GS Paper 3 (Economy/Security); vital for discussions on economic security and strategic autonomy in trade.
Protectionism
Government policies, such as tariffs, quotas, and subsidies, designed to restrict international trade to shield domestic industries from foreign competition. It often reflects a shift toward economic nationalism.
UPSC context
GS Paper 3 (Economy); used to analyze trade barriers, tariff wars, and impacts on domestic versus global industry.
Prelims Trap
Atmanirbhar Bharat marks India's return to pre-1991 import substitution policies aimed at creating a closed economy.
Atmanirbhar Bharat focuses on making India a competitive node in Global Value Chains (GVCs). It promotes resilience through capacity building, not absolute import substitution or closed borders.
Static Concepts Connected
What are the core features of the Production-Linked Incentive (PLI) scheme?
- Output-based subsidy: It provides financial incentives to companies based on the incremental sales of goods manufactured domestically, rather than providing upfront capital subsidies.
- Global integration: It aims to attract foreign companies to manufacture in India while encouraging local industries to expand capacity and integrate with global supply chains.
- Sector-specific: Initially targeted at electronics and APIs, it has expanded to 14 key sectors including textiles, drones, advanced chemistry cell batteries, and automobiles.
Why is the WTO's dispute settlement mechanism currently paralyzed?
- Appellate Body blocked: The US has systematically blocked the appointment of new judges to the WTO's Appellate Body, dropping it below the minimum quorum of three needed to hear appeals.
- MPIA workaround: Several nations formed the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary parallel mechanism to resolve disputes, though India has not joined it.
Cross-Topic Patterns
Friend-shoring & Critical Minerals
Deglobalisation accelerates "friend-shoring," directly linking to India's entry into the US-led Minerals Security Partnership (MSP) to secure non-China supply chains for EVs and renewables.
Shift to Bilateral FTAs
The paralysis of multilateral trade (WTO) directly drives India's recent pivot towards rapid bilateral Comprehensive Economic Partnership Agreements (CEPAs) with partners like the UAE and Australia.
PLI scheme specifics combined with WTO's Agreement on Subsidies (ASCM) restrictions is a high-probability multi-statement prelims question.
Linked PYQs · 4
Linked PYQs · 4
- 2025MainsGS3
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?
- 2023PrelimsGS1
Consider the following statements: Statement-I: India accounts for 3.2% of global export of goods. Statement-II: Many local companies and some foreign companies operating in India have taken advantage of India's 'Production-linked Incentive' scheme. Which one of the following is correct in respect of the above statements?
- 2018MainsGS2
What are the key areas of reform if the WTO has to survive in the present context of "Trade War', especially keeping in mind the interest of India?
- 2012MainsGS2
Why is international trade perceived to have failed to act as an "engine of growth" in many developing countries including India?
