The Don is back with a bang. Donald Trump‘s decisive victory in US presidential polls has sent ripples across the political and business world, with analysts and experts now reworking their assumptions of the changed world order and guessing what the unpredictable Trump may do in the next four years. As Trump returns to the Oval Office, India faces both opportunities and challenges across various sectors, including trade relations, foreign investment, and the overall business climate.
Under Trump’s first term, the US adopted a protectionist stance, and his second term is expected to continue this approach. For India, this could mean increased trade barriers, particularly in key sectors such as IT, pharmaceuticals, and textiles, which represent major exports to the US. There is a risk of heightened tariffs and trade restrictions that could disrupt established trade flows.
However, there is also potential upside. The “China Plus One” strategy, which aims to diversify supply chains away from China, could work to India’s advantage. As companies seek alternatives to Chinese manufacturing, India stands to benefit, particularly in the electronics, manufacturing, and pharmaceutical sectors. India’s positioning as a viable alternative to China could unlock new commercial opportunities, despite the broader trade tensions.
The stock market
In the immediate term, India’s equity markets are likely to react positively to Trump’s victory. Expectations of increased demand in sectors such as IT, pharmaceuticals, and chemicals, driven by the “China Plus One” policy, may boost investor sentiment. The Indian government’s initiatives like the Production-Linked Incentive (PLI) scheme and “Make in India” should enhance India’s attractiveness to US investors.
However, the long-term effects could be more complex. A stronger US dollar, driven by Trump’s economic policies, could have a negative impact on emerging markets, including India. Rising interest rates, coupled with a stronger dollar, may put pressure on global liquidity and hinder the growth of export-driven industries in India. Additionally, protectionist policies could dampen global growth, which might adversely affect India’s trade and economic stability.
H-1B visa program
The future of the H-1B visa program is another key area of concern. Under Trump’s previous administration, efforts were made to restrict the issuance of H-1B visas, and such policies may become more stringent in his second term. Changes to the visa program, such as increased wage requirements, reduced visa quotas, and a focus on highly specialised candidates, could negatively impact India’s IT sector, which has traditionally been a major beneficiary of the H-1B visa.
The implications for India’s skilled workforce are significant. While India’s growing domestic tech ecosystem could mitigate some of the impact, restrictions on H-1B visas could reduce the flow of talent to the US, potentially leading to a slowdown in the country’s IT outsourcing business. However, India’s focus on innovation and self-reliance in technology could provide a counterbalance to this challenge.
Sector-specific impact
India’s financial and industrial sectors could see a mix of positive and negative effects under Trump’s leadership. In the short term, sectors such as IT, pharmaceuticals, FMCG, and private banking are likely to benefit from favourable US policies, including corporate tax cuts and increased demand for Indian goods and services.
India’s IT firms could gain from higher demand for outsourcing services, particularly in Global Capability Centers (GCCs), while the pharmaceutical sector may see continued growth as the US focuses on cost-effective healthcare solutions.
The FMCG sector is expected to remain resilient, supported by strong rural demand, while private banks may benefit from higher return on equity and a relatively attractive valuation.
India’s defence sector is poised to benefit from strengthened US-India ties, particularly in the Indo-Pacific region. The chemicals sector could also experience growth, driven by shifting global supply chains and India’s role in diversifying US manufacturing.
Geopolitical risks
While the prospects are promising, geopolitical risks remain. A stronger US dollar, fuelled by Trump’s economic policies, could put pressure on emerging markets like India. Higher tariffs on Indian exports, particularly if India maintains a trade surplus, could hurt India’s manufacturing sectors. Additionally, a slowdown in China’s economic recovery could result in increased competition from Chinese exports, posing challenges to India’s own domestic industries.
India’s preparedness in sectors like semiconductor manufacturing and the “Make in India” initiative will be crucial in mitigating these risks. The long-term effects of a stronger US dollar and potential trade barriers will need to be closely monitored, as they could hinder India’s growth prospects.
India stands at a critical juncture as it assesses the implications of a Trump presidency. While the short-term outlook may be positive, particularly in sectors such as IT, pharmaceuticals, and defense, the long-term impact will depend on India’s ability to adapt to the changing global environment. The country must navigate potential trade restrictions, visa challenges, and geopolitical risks while capitalising on the opportunities presented by Trump’s protectionist stance and the diversification of global supply chains.
(Editor’s note is a column written by Amol Dethe, Editor, ET CFO. Click here to read more of his articles exploring several buzzing topics)
