Introduction:
Macroeconomic stability is a comprehensive evaluation of an economy’s well-being, focusing on indicators like inflation, unemployment, and economic growth. Protectionism involves using tariff and non-tariff barriers to shield local industries, while currency manipulation occurs when a central bank artificially influences currency values by buying dollars to create scarcity, weakening the local currency.
Body:
Macroeconomic stability in India:
- Inflation Control: The Reserve Bank of India (RBI) effectively manages inflation, targeting it within the specified 4-6% range, showcasing successful inflation management.
- Economic Growth: Despite a 7.3% GDP contraction in FY 2022-23 due to the pandemic, India demonstrates recovery in subsequent quarters, highlighting the pursuit of robust economic growth.
- Fiscal Discipline: India strives for fiscal discipline, with the targeted fiscal deficit for 2022-23 at 6.8% of GDP, considering the pandemic’s impact on government spending.
- Unemployment Rate: Initiatives like the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) address unemployment, contributing to labor market stability.
- External Sector Balance: India manages trade and capital flows to avoid excessive current account deficits, ensuring external stability.
- Foreign Exchange Reserves: As of October 2023, India maintains substantial foreign exchange reserves, standing at USD 634.34 billion, protecting against external shocks.
Impact of Protectionism:
- Global Trade Slowdown: Protectionist measures, such as tariffs and trade barriers, can lead to a global trade slowdown, evident in the WTO reporting weak growth in 2019.
- Supply Chain Disruptions: Protectionism disrupts global supply chains, emphasizing the need for resilient supply chains, as seen during the COVID-19 pandemic.
- Reduced Economic Growth: Protectionist policies may result in reduced economic growth, with IMF estimates suggesting a 10% increase in tariffs leading to a 1% reduction in global GDP.
- Increased Consumer Prices: Tariffs and trade restrictions often lead to higher consumer prices, exemplified by the US-China trade tensions.
Impact of Currency Manipulation:
- Trade Imbalances: Currency manipulation contributes to trade imbalances, providing a competitive advantage to countries artificially weakening their currencies.
- Increased Market Volatility: Currency manipulation introduces volatility to foreign exchange markets, impacting businesses and investors with sudden and unexpected currency movements.
- Impact on Foreign Reserves: Continuous currency manipulation affects a country’s foreign currency reserves, potentially depleting them and limiting the ability to manage external shocks.
- Global Economic Uncertainty: Currency manipulation adds to global economic uncertainty, emphasizing the IMF and World Bank’s importance of avoiding competitive devaluations for stability.
Way Forward:
- Collaborative Efforts: International organizations like the WTO can facilitate collaborative efforts for free and fair trade, mitigating protectionism risks.
- Dismantling Trade Barriers: Policymakers should work towards dismantling trade barriers to stimulate global economic growth.
- Embrace Digitalization: Investment in technology can enhance productivity and resilience to protectionist pressures, fostering competitiveness.
- Strengthen Global Monetary Cooperation: Transparent communication and coordinated policies among major economies can stabilize exchange rates and address currency manipulation concerns.
- Advocate for Reforms: Reforms in international institutions like the IMF and World Bank are crucial to better-addressing challenges arising from protectionism and currency manipulation.
- Promote Inclusive Trade Policies: Ensuring equitable distribution of international trade benefits can reduce resistance to globalization and promote the interests of all stakeholders.
In case you still have your doubts, contact us on 9811333901.
For UPSC Prelims Resources, Click here
For Daily Updates and Study Material:
Join our Telegram Channel – Edukemy for IAS
- 1. Learn through Videos – here
- 2. Be Exam Ready by Practicing Daily MCQs – here
- 3. Daily Newsletter – Get all your Current Affairs Covered – here
- 4. Mains Answer Writing Practice – here