What Lies Ahead?
India and its economy are bound to be affected by what Trump does after he assumes office on 20 January 2017. Here are some of the possible impacts of a Trump presidency on India and its economy
Photo Credit : Bloomberg,
When a predictably unpredictable person is elected president of the most powerful country in the world, people are bound to rely less on past practice and more on frenzied speculation to try and gauge what lies ahead. The rise and rise of Donald Trump has sent shockwaves not just inside America, but across the world. People are wondering: will he actually build a wall to prevent illegal immigrants from entering the country? The last time a wall like this was built a few thousand years ago and was called the Great Wall of China. Will he deport Muslims and ban their entry into the US? Will he abandon the NATO? Trump has already announced policy measures that are bound to impact the global economy and trade. He has said he will withdraw America from the Trans Pacific Partnership — a trade body that accounts for more than 40 per cent of global trade.
India and its economy are bound to be affected by what Trump does after he assumes office on 20 January 2017. But then again, the man is so unpredictable as a politician that it is virtually impossible to separate Trump — the real estate tycoon — from Donald — the President-elect. One interesting event that should have got widespread coverage in the Indian media was largely ignored, perhaps because India at the moment is too preoccupied with demonetisation and its consequences. Just a week after his election, two real estate barons from Pune, Sagar and Atul Chordia and a partner Kamlesh Mehta met the man at (where else?) Trump Towers in New York. They are involved in the Trump Tower project in Mumbai as partners of his real estate company. This meeting raised many eyebrows even though official spokespersons labelled it an informal and congratulatory chit-chat. After this meeting, it was revealed that the real estate company of Trump is involved in five major projects spread over India worth more than $1.5 billion. India seems to be the biggest market for Trump’s real estate company after America. Will his personal business interests make a difference to how Trump deals with India? Again, it is impossible to predict with such an unpredictable person!
Indian policymakers are largely thinking about four issues, when they speculate over how a Trump administration would deal with India. First, how he deals with the emerging superpower China and its all-weather partnership with an unstable Pakistan. Second, the IT and ITeS industries which are nervous after the election of Trump. Third, how Trump policies on possible trade barriers and more vigorous pursuit of intellectual property rights (IPR) will impact the Indian economy, which is betting big on Make in India. Fourth, how his policies would affect India with regard to global “issues” ranging from climate control to human rights. Of real significance will be the Trump approach to China and Pakistan. Both countries hostile to India’s ambitions are an Asian and global player of some significance. But those possibly momentous steps are best left for policy wonks and pundits, while we focus here on economics. Most worried in the immediate aftermath of the election of Trump is the IT industry. This sector generates more than $82 billion as export revenue and 60 per cent of that comes from the US. A protectionist America will surely hit this sector where it hurts. Then again, the US issues 65,000 H-1B visas to mostly IT professionals and another 20,000 visas to students. Trump has nominated Senator Jeff Sessions as his Attorney General. Sessions has been vehemently opposed to the H-1B visas. Will this new administration actually clamp down on H-1B visas that would severely affect Indian IT companies like TCS and Infosys?
Technology research firm Gartner has expressed its disappointment over Trump’s victory stating that the Indian IT sector must now brace for troubled times ahead. “A sub 10 per cent growth for FY17 is certain. Now with Trump, US administration will add to the industry’s woes. Trump administration’s protectionist views would have further dampening impact on growth prospects, if the views were to crystallise into some serious policy implementations,” says Arup Roy, research director, Gartner.
But there are signals of hope and optimism even amongst gloomy forecasts. B.V.R. Mohan Reddy, former chairman, NASSCOM, and founder and executive chairman, Cyient, says: “India’s IT sector has long contributed to the US economy in many ways. Besides making the US companies more efficient and competitive, Indian IT companies have helped the US companies develop new technologies and new products time and time again, significantly benefiting those companies, their customers, American job growth, and the US economy. We hope that, as the rhetoric of the US presidential contest fades, the Trump administration will make mutually beneficial trade with India a high priority, and will take a balanced approach to high-skilled visas and the contribution of India’s IT sector to the US economy.” Some analysts think that Trump, like British Prime Minister Teresa May, might actually encourage wealthy and high networth Indians to obtain Green Cards even as he discourages “contract labour”.
When it comes to the impact of possible trade barriers on the Indian economy and its ambitious Make in India plan, there will be no significant impact in the immediate future as India is a negligible player when it comes to countries that generate huge trade surpluses in trade with America.
If Trump does turn vigorously protectionist, it is countries like China, Mexico and Germany that will feel the immediate heat. How the impact on Make in India will pan out is virtually impossible to foretell right away. Besides, no one really expects Trump to behave like a runaway truck wrecking all trade deals and making America a completely protectionist and inward looking behemoth. Even if the worst case scenario comes true, the impact on the Indian economy will be far less than the manner in which countries like China will be affected.
Even Indian pharma industry leaders don’t foresee any downside. “The government change in the US will not have any significant impact on the export of pharmaceuticals from India, especially the cheap generic drugs, as there is no better alternative for US, or any other country for that matter, to lower their healthcare cost but at the same time ensuring quality,” says Uday Baldota, Chief Financial Officer, Sun Pharmaceutical Industries.
At the end of the day, wise Indians think that the best policy for India is to believe in itself and bet on its own future, while dealing with America. Says Saurav Srivastava, founder, Indian Angel Network, “In the final analysis, though, it matters less who runs America. What matters more is how we run India. We are one of the world’s three largest countries, one of the few remaining large unsaturated markets, growing faster than anybody else and if we take care of our own house, everyone will want to deal with us. As the world turns protectionist, it presents us with the opportunity to make ‘India great again’ by making it easy to do business, inviting the best and the brightest in the world to come and do business in India and make in India. Indeed, do all the things that make ‘America Great’ in the first place.”
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