Trump 2.0: What Indian economy can expect from the new US presidency

 

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.

  * The opinions expressed in the article are personal and do not represent the opinions of the organization I work for *