The recent election of Donald Trump as the 47th President of the US has stirred global markets, with far-reaching implications that transcend beyond the American frontiers. As India’s top export destination and a significant economic partner, the US plays a pivotal role in India’s trade, investment landscape, and overall economic trajectory. Trump’s anticipated policies, particularly on tariffs, immigration, tax reforms, and defence, could shape India's economic and geopolitical positioning. This article attempts to delves into the potential impacts of Trump’s presidency on the Indian economy.
1. Tariff implications
The US is India’s largest export destination, constituting
17.41% of India’s total exports in 2023. However, Trump’s proposed imposition
of higher tariffs at 10% across all imports could disrupt India’s export
market. Trump’s administration is likely to increase tariffs on key Indian
goods, including automobiles, textiles, pharmaceuticals, and wines, affecting
India’s competitive standing in the U.S. market. According to the Global Trade
Research Initiative (GTRI), heightened tariffs on these sectors could compress
India’s export revenue, particularly in manufacturing-dependent regions.
However, this scenario presents a different perspective as
well. The potential for up to 60% higher tariffs on Chinese imports aligns with
the globally relevant China+1 strategy, which encourages diversifying
manufacturing dependence away from China. India stands to benefit from this
policy shift by effectively positioning itself as an alternative manufacturing
hub and unlock increased market share in sectors like electronics, textiles,
and semiconductors.
2. H1-B Visa program
Indian IT firms and professionals heavily depend on the H-1B
visa program for workforce mobility to the US. In the past, Trump has adopted a
restrictive stance toward this program, asserting that it disadvantages
American workers. During his first term, stricter visa regulations led to
increased denial rates, with the average H-1B denial rate jumping from 6% in
2016 to 24% by 2018. Analysts anticipate similar measures could resurface,
potentially complicating the visa process for Indian applicants.
Indian firms that rely on H-1B visas for a skilled workforce
in the US may face an imperative to diversify their market focus or boost
domestic hiring in India. With 15% of H-1B applicants recently securing visas
amidst heightened scrutiny, Indian companies might prioritize alternative
hiring practices, which could spur local employment but limit Indian talent's
access to US-based opportunities.
3. Corporate tax cuts
Trump’s emphasis on reshoring US manufacturing through a
reduced corporate tax rate of 15% for domestic manufacturers could have mixed
effects on India. As the US works to reduce its dependence on overseas
production, particularly from China, opportunities for Indian manufacturers in
sectors like semiconductors and consumer electronics may expand, aligning with
India's Make in India campaign. However, this redirection may also heighten
competition for Indian exporters in the US market, making the environment more
challenging for MSMEs.
4. Strengthening collaborations on defence
Trump’s foreign policy outlook on reducing Chinese influence
in Indo-Pacific region places India as its strategic partner. The US is likely
to expand defence cooperation with India, focusing on countering China’s
regional influence through initiatives like the Quadrilateral Security Dialogue
(QUAD), involving the US, India, Japan, and Australia. Enhanced military
cooperation could catalyse investments in India’s defence sector, fostering technological
advancement, and robust defence spending to enhance its security
infrastructure.
5. Potential Rupee Depreciation Against a Strengthening
Dollar
The Indian rupee may experience depreciation in light of the
strengthening US dollar, with forecasts projecting it to decline to 84.20-84.50
against the dollar in the short term, and potentially reaching 84.50-85 in the
first half of 2025. A weaker rupee could increase the cost of imported goods,
impacting sectors reliant on dollar-denominated imports. Rising import costs,
especially for oil, could contribute to inflationary pressures within the
Indian economy, mandating appropriate policy responses from the RBI.
Donald Trump’s presidency presents a barrage of economic
challenges and opportunities for India. While increased tariffs and restrictive
immigration policies may create hurdles for Indian businesses, opportunities
also arise from the China+1 strategy, defence collaborations, and export
competitiveness. Indian policymakers and businesses need to navigate these
shifts, ensuring India capitalizes on new avenues while mitigating potential
adverse impacts.
