The biggest fear in India from the uncertainty stemming from the US elections, is a breakdown of the known global order. Apprehensions about a global economic super power, like the US, adopting protectionist measures, is the new fear that has aligned with concerns over stricter immigration and tight trade flows.
In a way, these fears are in line with the “heightened uncertainty” that a Citi research recently brought to the fore, warning of slower economic growth in the US with a Donald Trump victory, and of an easing in the slackness if Hillary Clinton stays on with President Obama’s policies.
But the sharp change in economic policies, as the world has known, is what has observers concerned. “While there is a wide gap in popularity in favor of Hillary Clinton over that of the Republican nominee Donald Trump, it also needs to be said that the US population is fed up of established politics. That is the chord that (Republican nominee) Donald Trump has struck. A Hillary presidency will need to recognise this reality. This could lead to protectionism and inward looking policies even by a democratic administration. Such protectionist measures will be worrying for Indian business,” says Vikram Singh Mehta, chairman of Brookings India and senior fellow Brookings Institution.
The concerns come even as trade leaders from the two countries are scheduled to meet in India next week to promote Indo US synergy in joint ventures, co-development, co-production and technology transfer, crucial to reach the targeted $500 billion US trade. The Indo-US trade is worth more than $100 billion today and the US is already India’s largest defense partner with $13 billion worth of sales. But then India also needs $1.6 trillion worth of investment by 2025 to grow at more than 8%; to develop sectors like technology, infrastructure services, aerospace and defense, areas that hinge majorly on US collaboration.
The specifics point toward an initial negative impact with either Clinton or Trump in power. “A Republican victory can dilute the strengths of Europe which can affect Indian IT services,” said Akhil Awasthi, managing partner with Tata Capital, a financial services company with the Tata group. “With Clinton in office, the dollar may not be perceived strong and that has its own implications,” he added.
Indian business is already grappling with the impact of losing established IT and auto business with Europe as most Europe-looking Indian companies based their businesses in the UK, which has recently voted to leave the EU. Indian businesses also have to contend with the fact that an inward looking Washington will not help matters related to disputes on Indian imports of solar panels and on visa fees hikes by the US.
The corollary impact from related geopolitical developments could however work in favor of India. Brookings’ Mehta points at how China has adopted a hard stance over the dispute on the South China Seas. “It (China) has rejected The Hague tribunal judgement. China is also losing its competitive edge. Real wage rates have risen sharply. All this could work to India’s advantage if on one hand the new administration pivots strategically towards India and on the other, US business look to India as a new manufacturing hub. Much will depend on how effectively our PM is able to translate his vision regards “ease of doing business” into reality.”
Between the two, Hillary Clinton is seen as more favorable for India. A poll by the Pew Research Center released in June had found that 28% of Indians had confidence in Clinton’s ability to handle world affairs, while 16% did not. In comparison, only 14% had confidence in Trump in contrast to 18% who did not.
A Bloomberg report said that under a Clinton presidency, which the Citi research put at a 60% likelihood, an economic drag may be eased “if it becomes clear that she will resume the Obama policies.”
But consultants who have worked on Indian US business deals say things can eventually be resolved between two of the world’s largest democracies. “While there is some amount of uncertainty, once elections are over, clarity will make things better. US is a strong democracy and at the end of the day, whoever assumes office, will work to keep it that way,” said Shashank Tripathi, partner, leader PwC strategy and India. “We are not overly dependent on exports as are other countries like Malaysia and China, who grew over the years with their focus on manufacturing exports. I think our collaboration with the US in defense will continue. There could be a marginal slowdown in IT services,” Tripathi added.