February, 2017
Issue No. 15 / Archive
Policy Watch

Donald Trump and India: Opportunities abound

Donald Trumpís presidency in the United States of America impacts the entire world, and India is no exception. Pranjal Sharma, an economic analyst, advisor and writer, looks at the current state of Indiaís relations with USA and whether Trump presents an opportunity or challenge to India.

In diversity there is opportunity. The new administration under President Donald Trump is gleefully uprooting all established norms and frameworks that have governed business and diplomacy.

His approach and policy will perhaps be as disruptive as technology has been for consumers and industry. At a time when industry leaders are grappling with collapsing business models, the wave of change created by Trump will only add to troubled waters. However, there is enough strength in India to convert the challenge into a fresh opportunity.

From the perspective on Indian business, there are two broad areas where his impact will be felt.

Trade & Investment
The trade and investment linkages between US and India has been growing rapidly with US being the third largest investor in India. But India is not dependent on US as many other countries. Global trade arrangements that had the potential to hurt India were created under the Obama administration. The Trans Pacific Partnership was a collation of 11 countries under the influence of US that would trade at preferential terms. This arrangement left India and China out. The agreement itself was tortuous and took five years to be finalized. The Obama administration was pleased with it, but Trump pulled out the treaty within days of taking charge. This is good news for India. A large trading block with high walls could impact our exports and investment. The trade bloc being built included Australia, Brunei, Canada, Japan, Malaysia, Mexico, Peru, US and Vietnam. This would have created a wall around these countries which economies like India would have found tough to negotiate. These countries are the most vibrant economies of their regions. For India, it would have meant recalibrating its trade negotiations in almost all the regions.

On investment, the story is yet to emerge. While Trump is demanding US companies to bring back manufacturing jobs, it could lead to reduced US FDI in India. US companies have invested more than $12 billion in India and are unlikely to give it up. At worst, the expansion of their manufacturing and job creating activity will be reduced. At best, Trump will allow expansion in India as long as there is creation of jobs in US from his infrastructure push. India has other suitors too. Countries like Russia and China are investing enough in India for us to worry too much about a potential dip in US investments.

People movement and IT sector
The InfoTech sector is the most dependent on the US market. The $150 billion IT industry employs about 3.7 million people. The IT industry gets a bulk of it business from US based companies. Its work has mostly been based on creating technology based solutions or running their back room operations. The key value provided was of millions of skilled engineers solving problems at a cost that local engineers could not. However, while this model grew, the IT industry could not evolve to a higher orbit. The big three IT companies, namely TCS, Wipro and Infosys, became global by being technical manpower providers. The Trump promise to reduce the H1B visas has the sector very worried; they fear that lower access will reduce business. However, for the Indian IT sector, automation should be a bigger worry than visa limits. All above mentioned companies have laid off engineers as new technologies allow automation of processes that were earlier manned by people.

The IT sector has been facing declining markets even before the Trump promise to curb visas. The real opportunity now lies for Indian IT to build on the two adversities facing them. Lower access to US means should imply higher focus on India’s technology needs. With digitization of many government services and corporate processes, India offers more opportunity even if at a lower price. Secondly, IT firms have now begun to focus on new platforms based on artificial intelligence and machine learning. Currently less than 10 per cent of their revenues come from new technologies. If they can scale up on this front and provide solutions for Indian needs, US will not be a worry for them.

In any case, Indian IT companies have been setting up centres within US and Latin America to be closer to their clients. A Confederation of India Industry (CII) study said the Indian companies created 91,000 jobs in the US. If India can continue to prove that it is creating jobs for itself and for the US with focus on new technologies, both countries will find the relationship beneficial.