U.S. president-elect Donald Trump’s victory introduces a mix of challenges and opportunities for India. While the potential for increased tariffs, H-1B restrictions, and a strong dollar could bring short-term volatility, it presents India with "long-term incentives" to expand its manufacturing, diversify export markets, and enhance economic self-reliance, according to an SBI Research report.
Indian exporters have expanded their U.S. market share in recent years, with the country being one of India’s top trading partners.
SBI's report 'US Presidential Election 2024: How Trump 2.0 Impacts India’s and Global Economy' says a reduction in trade benefits or the imposition of tariffs could pressure profit margins, prompting Indian companies to explore alternative markets or invest more in domestic markets to offset U.S. market risks.
"It is also likely that India can witness a rise in exports if the nation can reap the benefits of its comparative advantage," writes Soumya Kanti Ghosh, group chief economic adviser, SBI Research.
Between India and the U.S., wherein India lost concessions under a generalised system of preferences (GSP) and though India’s GSP status has still not been restored, a commodity-wise trade breakup shows a rise in India’s export of certain commodities in which it has gained comparative advantage over China. "Footwear, minerals, chemical and electrical and machinery exports embrace this pattern," the report reveals.
The report says India will reap the benefits of its comparative advantage over China under Trump 2.0 as well. "Basis SBI's analysis, during 2017-2021, the revealed comparative advantage was seen in metals, minerals, chemicals, footwear, textiles and clothing intermediate goods. Further, given the global supply chain relocation and Trump 2.0 sectors such as pharmaceuticals, textiles, and electronics are likely to gain."
The data shows that Trump 1.0 had imposed tariffs of 25% on steel, 10% on aluminium and 30% on washing machines in 2018. "Even then, iron and steel exports from India to the U.S. rose 44.7% from FY20 to FY21. India has maintained a trade surplus with the U.S. implying that Indian exports have been robust despite the tariff."
On fear around rupee depreciation, the report highlights that during Trump 1.0, the rupee depreciated by 11%, less than it depreciated during the Biden term. "A lower rupee might provide an export advantage, potentially boosting revenues in sectors like textiles, manufacturing, and agriculture."
The report forecasts that India may see shifts in foreign direct investments (FDIs) during Trump 2.0. The Trump 1.0 administration had seen significant regulatory changes aimed at attracting investments back to the U.S. "India is no longer dependent on the traditional sources of FDI inflows… unlike the recent past, FDI is now coming in many new sectors (around 12) like non-conventional energy, sea transport, medical and surgical appliances, etc.. This trend could continue thus offsetting the possibility of a decline in FDI flows in traditional sectors in Trump 2.0."
If the issue of non-immigrant visas puts a roadblock to work visas, particularly the H-1B visa program, it may impact the Indian IT and ITes sectors. "However, this could also eventually strengthen own domestic manufacturing through the “Atmanirbhar Bharat” initiative as we may look at accelerating reforms in domestic production, self-reliance, and inward investment."
Strategic government policies, robust international demand and strong partnerships with the U.S. have a positive bearing on India's defence exports which have surged over 30 times in the last decade. "The strategic cooperation may gain further momentum given the increasing importance bestowed to the Indo-Pacific region."
In defence, India saw exports surging 30 times in the last decade, thanks to strategic government policies, robust international demand and strong partnerships with the U.S. This could continue, says the report, given the increasing importance bestowed to the Indo-Pacific region.
