How Modi can use Trump to India's advantage

India-US bilateral relations have reached new heights in the past few years, and developed into a "strategic partnership".

The regular dialogues between the two countries have enabled them to broaden their bilateral cooperation, and today it covers trade and investment, defence and security, education, science and technology, civil nuclear energy, clean energy, environment, agriculture and health.

Further, an ambitious target of $500 billion worth of trade of goods and services has been set. This is a manifold increase from the current figure of around $100 billion.

Investment

The US is also the sixth largest source of FDI into India and increasing Indian investments in the US has been an interesting feature of bilateral ties, which reached a new height due to the close proximity between PM Narendra Modi and President Barack Obama.

However, Donald Trump's win in the US presidential elections has raised many concerns about the ongoing bilateral advancement and its impact on the Indian economy.

While Trump has been rated as the biggest source of global risk by The Economist, he has shown his admiration for India and its policies towards terrorism and nuclear energy.

Also, there is a clear bipartisan support in the US for a deeper India-American strategic as well as economic partnership.

During the campaign, Trump has complained about bad trade deals, illegal immigration and terrorism without giving any concrete solutions for them.

His manifesto of "Making America Great Again" is based on the idea of de-globalisation which involves the US policies against free trade and easy immigration policy.

He also blames emerging-market counterparts as one of the beneficiaries from the bad trade deals and high unemployment rates in the US.

Trump, in response to high unemployment, hopes to bring back lost manufacturing jobs by slashing tax rates and implementing strict trade policies that involves tariffs and non-tariff barriers.

While this has mostly been targeted against countries like China and Mexico, Trump has addressed India as "a key strategic ally" and praised PM Modi for his stance to combat and fight terrorism.

Trump has insisted on further strengthening the strategic and economic ties that is in the interest of both the countries.

However, the reality is that the two mega trade deals TTIP and TPP are almost irrelevant now given Trump's attitude towards trade.

But from an Indian perspective, given the strong relations between the two countries, trade and investment flows should not be affected unless the US raises barriers to trade in goods and services and becomes protectionist with the objective of promoting jobs in its economy.

Trump's win will have significant impact on the India-US trade because of the protectionist policies he seems to favour. The sectors that will be mostly affected include IT services and pharmaceuticals.

The IT services exports will undertake a hit where the outsourcing giants like TCS, Infosys, Wipro and other users of H-1B visas will be the most affected, although he has also acknowledged the significance of highly skilled Indian professionals for IT sector in the US.

Trump's strong views on immigration have managed to capture the imagination of American public.

Specifically, the issue of H-1B visas is of extreme importance to the Indian IT services sector and any drastic move could affect Indian IT companies and employees.

On the contrary, Trump has also said that he wants to attract Indian entrepreneurs and students.

Issue

While Trump has been inconsistent with his views over this issue, it would be interesting to see since Indians are the largest proportion acquiring H-1B visas.

In case of stricter H-1 visa regime but lower tax regime under Trump, Indian companies have to open their subsidiaries in the US instead of sending professionals.

On the other hand, pharma sector could actually gain as Trump's proposal to relax import duties and entry restrictions for drug makers that provide cheaper, safe and reliable products, might work in favour of Indian drug makers provided there is no IPR issues.

Also, Trump's criticism of China as "currency manipulators" and bad trade agreements could see India emerge as a major player on the Asia front as far as the US trade policies are concerned.

Alternatively, with the US being a major and founding member of the WTO, Trump cannot be selective in his trade policy.

The US would have to have a similar tariff rate for similar goods irrespective of its origins. Thus, a tariff on auto imports from Mexico or China would similarly harm Modi's "Make in India" move.

Terrorism

Trump's strong stance on terrorism and comments on Pakistan could also turn into deeper understanding between India-US defence and strategic ties.

Trump has sought the help of India and other nations to address the problem of a "semi-unstable" nuclear Pakistan.

Also, the Modi government may find one of its biggest allies in Trump who once called India's neighbour "probably the most dangerous country in the world".

This could improve the defence ties and strategic cooperation between the two countries while simultaneously boosting economic ties as well.

With Trump rising to power, there is a huge scope for revitalising India-US relations and also in curbing cross-border terrorism.

India now conducts more military exercises with the US than any other country. However, there is still some scope for improvement in the bilateral relationship.

Another outstanding issue is India's complicated custom tariffs, IPR regime and the uncertainty with regards to the FDI in the retail sector.

(Courtesy of Mail Today.)

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