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Saturday / March 25.

Trump and India: What can we expect in the economic domain?

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By Dr Anand Kulkarni

It is anticipated that trade between India and the U.S could treble from $100b to $300b in coming years (Haidar S). Underscoring this is, that both Modi and Trump have a practical business-minded focus to economic and other matters, not overly driven by ideological persuasions. Pragmatic deal making would be a part and parcel of this. Backing this up is India’s growing liberalisation including reduced restrictions on foreign investment and improvements to the business environment. However, much more reform in the labour market is required to improve its flexibility and dynamism in India.

What is in store for India?

India and Indians interest Trump. His personal business interests in India are worth around $1.5b, which makes India the most lucrative market for him outside North America. However, of course there are clear danger signs in this. Can business tycoon Trump disentangle himself from President Trump and will his investments in India be at risk? The appointment of Indian diaspora members to prominent roles in his upcoming administration could also cement business and economic links.

There is also possible trade and investment diversion in favour of India as a result of attempts by the U.S to impose trade barriers on exports from China. This may open the door for further Indian exports (and other countries) including of services.

The appointment of Indian diaspora members to prominent roles in his upcoming administration could also cement business and economic links.

However, there are two very significant cautionary notes here. Firstly, is the possibility of Trump taking a more generally protectionist stance thus adversely affecting exports of all countries to the U.S. Secondly, is the impact of proposed reductions in corporate taxes in the U.S which may lead U.S firms abroad (or consider going abroad) to relocate (or remain) in the U.S (Sharma S). This could affect foreign direct investments in key sectors in India such as automobiles and hamper Modi’s efforts to regenerate Indian manufacturing.

Visa queues

It remains to be seen if the Trump administration implements a visa squeeze. | Photo Courtesy: Business Line

The wildcard is immigration. Trump’s position on the H1-B temporary visa, a vehicle for most Indian economic migration (especially in IT) to the U.S., waxed and waned through the campaign (Choudhury U).

At the very least, one could expect some form of action on the H1-B, perhaps through restrictions and/or more onerous conditions which would be detrimental to Indian interests. This in turn could adversely affect the outsourcing industry in India.

Further, the anti Islam rhetoric in Trump’s campaign could affect adversely migration generally and skilled migration particularly, from India.

What lies ahead for Trump?

The biggest unknown is the unknown itself. A Trump presidency is a wildcard. Will a protectionist approach slow down growth globally dragging everyone down with it, including India? Will there be costly trade wars and to what extent will India be caught up in this?

There is a possibility of higher interest rates in the U.S through larger debt and deficit. Will they slow down growth in the U.S affecting other countries either directly or indirectly? Or will decreased corporate taxes and a more pro-business approach stimulate the U.S economy? This far the expert analysis tends to the former.

In short, get ready to strap in for a wild ride!


Bibliography
Haidar S “Trump Adviser promises a fillip in India-U.S ties” The Hindu 4 January 2017
Sharma S “Here’s how Donald Trump will impact India” Economic Times  9 November 2016
Dr. Anand Kulkarni is a consultant/Principal Adviser Victoria University, Australia and a Fellow at the Centre for Policy Development.
Featured Image Credit: US News