Impact of protectionist policies of major economies on Indian economy

Abstract

Protectionism, by definition, means the limiting of trade between countries by implementing tariffs on imported goods, restrictions, quotas and other regulations imposed by the governments. Primarily, such policies are incorporated in a country to safeguard the interests of the local producers, businesses and workforce pertaining to the import-competing sector from foreign players. It is contested that such policies would discourage unfair trade practices and would encourage fair ground for competition of the imported goods and services with the ones produced or generated domestically. This would decrease the trade deficit and enable the employment of the locals in certain sectors and industries pertaining to the countries in specific. This however, in the recent years has majorly turned out to be anti-globalization. In the recent decades, despite the world moving towards liberalization and free trade, many nations have been adopting protectionist measures both in terms of trade and human resource flow. There are certain reasons why a country chooses to adopt such measures, the most common ones being-to grow and diversify the domestic economy and safeguard employment. The pace of rising protectionist measures during October 2015 to May 2016 has been the fastest since 2008 financial crisis. Though G20 official report mentions that G20 would resist all forms of protectionism. However, contrary to the official communique, the WTO report on G20 trade restrictions observes that 70% of such measures were instigated by the economies who are a part of G20. There have been many instances where different forms of protectionism were adopted by countries. Through Common Agricultural Policy (CAP), EU imposes substantial tariffs on many agricultural markets. The other form could be through escalated tariffs- placing higher tariffs on processed foods. According to a WTO report, the average tariff EU imposes on primary food products was 9.9%, but for processed food, it was as high as 19.4% (more than twice). There has been a growth of Red Tapestrangling trade by imposing bureaucracy, red tape etc., which increase the administration costs of trading. The very recent development in the protectionist direction was the halt of one of the wellknown trade accord in world history, Trans Pacific Partnership. The deal was expected to establish new trade terms among the United States and 11 Pacific Rim nations- a set of countries which represents 40% of global GDP and a third of the world trade. Protectionism takes a different form in the services industry, as most services are intangible in nature and hence do not lend themselves to tariffs and quotas. As a result, the government policies related to the regulation of foreign investment – related to both initial establishment and to operations after establishment, become important. Singapore, one of the most prominent economies among the Asian countries had been continuously trying to invite and attract talented individuals across the globe, especially from China and India to develop as a nation. However, with the recent growing unrest among the locals and the national politics, the government has imposed stricter regulations over the hiring of foreign individuals in all the fields. Also, the number of foreign students in the Universities was regulated from 18% to 15% (announced after May 2011 General Elections). Some of the new rules include the formal floating of any job position only for the locals/Singaporeans for a period of 15 days on a governmental portal and substantiating the employment of the foreigners. Such measures have seriously hampered the higher education and foreign employment scenario for Indian students. On the contrary, few countries like Germany and other EU countries are all set to make the best use of the rising protectionism and are looking forward to easing out trade and achieve flexible fiscal policy hence support global growth and development. The direct effect of these measures would be on the countries that are on the exporting side of the trade. Indian export trade has been dependent on these countries, which would make it vulnerable to the effects of the protectionist measures adopted. Here arises a need to study the effects on India and the possible measures to counter the changes brought about by these measures or in some cases even benefit from the changes.