It was largely expected that Hillary Clinton would be the next president of the United Staes of America. But the results have proved otherwise. The global media has been against Donald Trump's ascendancy probably due to his maverick persona so much that support moved to Clinton even though she was never considered to be "that great". The vitriolic words spewed by both of them got too personal and the puritans were aghast at Trump's past and hence it was believed that he would not be accepted. But the fact that he won the primaries means that there was a lot of support, which curiously was built on a negative platform of anti-immigration, anti-globalisation and anti-Muslim ideology. This appears to have clicked with the masses as well as the result revealed.
But what does it imply for India? There were mixed reactions during the course of the campaign with some going to the extreme level by praying for his success while others acting guarded on what it could imply for India. On the political side, Trump would make the US a useful ally for India given the border tension with Pakistan since terrorism has been high on his agenda. Also, the Republican Party (starting with George Bush) has been strongly inclined towards India especially on the nuclear issue and would be again more positive for us. It is, however, the economic implications which are of interest.
First, the immigration issue is likely to militate against us. While he has not specifically targeted Indians and his angst has been directed at Mexicans, the issue of job creation is paramount in his mind. Also, his stand against moving jobs outside the US are well-known. While Fed policy is data dependent on employment numbers, quite clearly, the IT sector has a reason to be worried. While the overt tones have been more on semi-skilled labour and not technical staff, one cannot be sure of the final stance taken. This does not augur well for India since a large part of the IT industry is dependent on what happens in the policies on immigration in the US.
Second, the pharma industry could have some worries as well especially when it comes to patents, and the fact that their products are popular could be an issue to watch out for.
Third, on the positive side, A Trump victory would be good for investment flows as he has indicated that he wants interest rates to remain low. Hence, the expected rate hike of the Federal Reserve would be pushed forward for some more time. The positive impact would be that the funds which would have otherwise flowed back to the US in case interest rates were raised will continue to flow to the other countries.
On the same issue, he has also expressed his wish to change the head of the Federal Reserve, which if done can be disturbing since it would probably be the first time that such a thing would have been done because the incoming President has a different view on monetary policy.
Four, Trump has openly spoken against globalisation and the tone assumed is one of protectionism. He has spoken against free trade agreements and has announced that the North American Free Trade Agreement (NAFTA) in particular, which includes Mexico, would be his first target. While India would not be directly affected, there would be an indirect impact due to the developments that take place on, say, the WTO where the US has been arguing with other countries to open up their borders for trade. It could follow a countervailing protectionism policy from other countries which will affect all nations. Hence, a kind of beggar-my-neighbour policy would be pursued where every country would like to look at global issues with a purely domestic eye.
Related to this factor, countries aligned with the US through agreements could find a Brexit like situation if the US President feels that these agreements militate against the interest of the US. This can be upsetting for the global economy.
Five, at the market level, any news of Trump victory has been absorbed negatively by the stock market, hence the immediate reaction will be perverse. However, after a few sessions, it should be business as usual.
The US is a very important country for India on the economic map. It accounts for 15 percent of our exports and almost the same proportion of our imports. The US also accounts for around a third of the portfolio flows to India and almost 7 percent of foreign direct investment (FDI). The IT sector is also largely dependent on the US economy and policy stances. What all this means is that the result of this election is going to be a major factor in the next couple of months. On the whole it does appear that it would be a mixed bag for India, however, one would have to wait and watch as to what would be his real stance, since as often it's in Politics candidates do say certain things to curry favour and then go slow on them once in power and reality sinks in.
— The writer is chief economist at CARE Ratings. Views are personal
First Published On : Nov 9, 2016 14:56 IST