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  1. From weaker rupee to H-1B visa hurdle: SBI report breaks down Trump 2.0’s impact on India | 5 key takeaways

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From weaker rupee to H-1B visa hurdle: SBI report breaks down Trump 2.0’s impact on India | 5 key takeaways

Kunal Gaurav

5 min read | Updated on November 11, 2024, 21:53 IST

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SUMMARY

A report from the State Bank of India (SBI) offers insights into the potential economic impact of a second Trump administration on India.

donald trump india h1b visa trade sbi report.webp

SBI’s report suggests Trump’s return could revive higher US tariffs, impacting sectors like pharmaceuticals and textiles in India.

Former US President Donald Trump’s return to the White House has sparked a wave of speculations around its impact on India and the global economy. A report from the State Bank of India (SBI) on the potential impact of a second Trump administration sheds light on what India might expect in areas like tariffs, monetary policy, foreign direct investment (FDI), visa issuance, and defence exports.

According to SBI analysts, the “off-the-shelf” policies –from tax to tariff to jobs and war on prices– of Trump 2.0 “would be equally interesting and worth watching”.

The report suggests that 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…But it also presents India with long term incentives to expand its manufacturing, diversify export markets, and enhance economic self-reliance,” the report noted.

Here are the key takeaways from the SBI report on Trump 2.0 impact:

Tariffs and trade: During his first term, Trump imposed steep tariffs on imports, such as 25% on steel and 10% on aluminium, which impacted global trade relations, including those with India. If Trump pursues similar policies in a second term, certain sectors—like pharmaceuticals, textiles, and engineering goods—may face increased tariff barriers in the US market, according to the SBI report.

"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 US market risks," the report said.

It is also, however, likely that India will reap benefits of its comparative advantage over China under Trump 2.0, it added.

Monetary Policy: Less than 48 hours after US elected Donald Trump as its next president, the Federal Reserve on Thursday approved its second consecutive rate cut, lowering its borrowing rate by a quarter percentage point, or 25 basis points. Though the Fed, hinting at more gradual cuts in the future, is expected to maintain its independence, Trump’s inflationary economic approach might keep the dollar strong, exerting pressure on India’s rupee. However, the SBI report asserted that the fear of rupee depreciating sharply under Trump’s regime is “unfounded.”

“During the Trump 1.0, rupee depreciated by 11%, less than it depreciated during Biden term,” it noted.

A stronger dollar could lead to short-term depreciation of the rupee, but the report emphasised that this would likely be modest, around 8-10%, in line with historical trends. A weaker rupee could ultimately benefit Indian exporters, particularly in textiles, manufacturing, and agriculture, as their products become more competitively priced on the global stage.

“While a stronger dollar might result in short-term capital outflows for short-term as investors flock to dollar-based assets, on a positive note, a lower rupee might provide an export advantage, potentially boosting revenues in sectors like textiles, manufacturing, and agriculture,” the report said.

FDI prospects: The SBI report suggests that while Trump’s policies to attract investment back to the US might reduce traditional FDI inflows into India, new opportunities are emerging. India has diversified its FDI sources, attracting investment into non-traditional sectors like renewable energy, medical technology, and sea transport. These areas now make up over 50% of recent FDI inflows, a significant jump from just 18.7% three years ago. This trend could help India sustain its FDI momentum, even as certain multinational companies refocus on the US market.

“India is no longer dependent on the traditional sources of FDI inflows… unlike the recent past, FDI is now coming in many new sectors like non-conventional energy, sea transport, medical and surgical appliances, etc.. This trend could continue thus offsetting the possibility of decline in FDI flows in traditional sectors in Trump 2.0 if any,” the report says.

H-1B visas and IT sector: Trump’s previous administration maintained strict controls on non-immigrant visas, a policy expected to reappear. During Trump 1.0, the non-immigrant visas issued by the US were largely stagnant at around 10 lakh per year. However, in 2023, around 14 lakh Indians received non-immigrant visas. Indian IT firms that rely heavily on H-1B visas could face hurdles under the incoming Trump administration if visa restrictions return.

This could force Indian IT companies operating in the US to hire more American workers, increasing their operational costs.

“While Trump’s policies may pose challenges, they also offer India an opportunity to strengthen its own domestic manufacturing through its “Atmanirbhar Bharat” initiative. We may look to accelerate reforms in domestic production, self-reliance, and inward investment,” the report adds.

The challenge, however, is substantial. India’s IT and IT-enabled services sectors could face temporary setbacks in securing talent mobility for their US operations, though this may push companies to allocate resources towards higher investments in workforce development at home.

Defence exports: Defence ties between India and the United States have strengthened in recent years, with the US becoming a significant defence supplier and partner to India. India’s defence exports have also surged, rising over 30 times in value from FY14 to FY24.

"A Trump administration, historically supportive of India’s defence aspirations, may strengthen these ties, particularly in the Indo-Pacific region. Continued defence collaboration could drive technology transfers, investments in defence manufacturing, and joint ventures, all of which could add value to India’s economy," the report says.

About The Author

Kunal Gaurav
Kunal Gaurav is a multimedia journalist with over five years of experience in sourcing, curating, and delivering timely and relevant news content. A former IT professional, Kunal holds a post graduate diploma in journalism from the Asian College of Journalism, Chennai.

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