“We see India as a relative beneficiary, due to its domestic demand-driven growth model and benefits from lower commodity prices, supply chain shifts and on foreign policy.”
The report however adds that “India and the US share deep economic and strategic interests that are unlikely to be compromised, irrespective of the election outcome. The US also sees India as a strategic counterweight to China on foreign policy. India is a large, domestic demand-driven economy, so the economic fallout of weaker US economic growth should be limited.”
Any frictions on trade and immigration under Trump Presidency will be offset by the gains accruing to India from the ongoing supply chain shifts, as de-risking from China will gather momentum.
The economic impact on India should also be limited. India’s economy is largely driven by domestic demand, so the potential fallout from weaker US growth will likely to be contained and the negative growth spill over should be limited. On the contrary, lower commodity prices owing to the hit to China’s growth and lower oil prices, due to a greater push towards fossil fuels, will be beneficial for India.
The report says India’s large forex reserve and fiscal disciple can handle any volatility.
“We also believe that India is well-prepared to handle any volatility stemming from US policies, amid its large FX reserves buffer, stable growth-moderate inflation mix, high real rates, fiscal discipline and a continued focus on reforms”
Trade friction between India and the US may resurface under Trump’s Presidency, as India runs a trade surplus with the US, which could draw scrutiny. India’s merchandise trade surplus, which stood at around USD 32 billion in 2023, may face challenges if Trump reinstates tariffs or takes punitive measures. India’s high tariffs on certain goods have been flagged before, and these issues may re-emerge.
However, these frictions are likely to be outweighed by the medium-term benefits of supply chain relocation. As companies move away from China, India remains at the forefront, attracting investments and reshoring efforts due to its large consumer base, manufacturing policies, and economic reforms.
One area where India could face challenges is immigration. Indian nationals make up over 72 per cent of the H-1B work visas issued by the US, and any tightening of immigration policies could impact Indian professionals. While Trump’s focus has largely been on illegal immigration, changes to legal immigration processes could also pose difficulties for Indian IT companies and professionals.
Despite this, Indian firms have already adapted by reducing their reliance on H-1B visas and hiring more domestic workers in the US, potentially softening the blow of any immigration policy changes.
On the foreign policy front, India is expected to benefit under a Trump presidency. With less emphasis on human rights and democratic values, India could see fewer clashes with the US over sensitive issues. Additionally, Trump’s softer stance towards Russia could align with India’s interests, given its ties with Moscow.
India’s strategic importance as a counterweight to China will continue to strengthen under Trump, ensuring that the partnership between the two nations remains robust in the defence, security, and economic domains.
However, the report adds, India and the United States share deep-rooted economic and strategic interests, which are expected to remain strong, regardless of the US election outcome.
As the US sees India as a key counterweight to China, India’s large domestic demand-driven economy ensures it remains insulated from the potential negative impacts of a weaker US economic growth.