Trump’s Rise Deals Another Blow to India’s Manufacturing Dreamby
Automation and global slowdown already posed headwinds
India is late to game East Asian exporters started post-WWII
Donald Trump’s rise is the latest setback for India’s ambition to become a factory for the world.
Having missed the export-driven steam-boat that transformed China and fellow East Asian economies over the past several decades, India under Prime Minister Narendra Modi had pinned hopes on an ambitious "Make in India" campaign to make up lost ground.
With the world’s biggest consumer market soon to be overseen by a president who’s pledged to bring manufacturing jobs back to America and raise barriers to imports, that hardly helps Modi’s cause. Britain’s vote in June to leave the European Union had already given impetus to a shift toward protectionism in developed nations, casting a pall on emerging-market prospects.
While China has far greater commerce at stake with the U.S., and bore the brunt of Trump’s anti-trade rhetoric, the prospect of new strictures cuts off an avenue for India at a time when global trade growth was already slowing.
“In the medium to long-term, a Trump presidency would add to India’s woes,” said Priyanka Kishore, lead Asia Economist at Oxford Economics in Singapore. “It would impact India’s engine of growth -- the services sector -- negatively and also accelerate the nominalization of India’s services and services exports growth, which is an emerging source of concern.”
Trump’s policy mix could slow planned U.S. investment abroad, and place curbs on immigration, especially the information-technology workers that India specializes in. Trump has characterized so-called H-1B visas as hurting American workers. Indians account for a big share of these -- 70 percent of those approved in 2014 were to people born in the country -- and they offer Indian companies a critical way to skill up their staff.
At the same time, there are plenty of reasons for Trump to look favorably on economic ties with India, which has been a geostrategic rival of China in south Asia. American companies like Wal-Mart Inc., Facebook Inc. and Apple Inc. want to boost their presence in India, with its swelling middle class, and top executives including Mark Zuckerberg and Tim Cook have toured the country seeking opportunities in a nation of 1.3 billion people.
“India represents one of the most attractive long-term growth markets for U.S. exports,” said Rajiv Biswas, Singapore-based chief economist for Asia-Pacific at IHS Global Insight. Foreign direct investment rose to a record in 2015, official data show.
Any threat to India isn’t imminent, and much depends on whether Trump’s turns campaign rhetoric into policy reality. When the rest of the world was glued to Trump’s stunning election victory, most of India was more interested in the government’s shock move to ban 500 and 100 rupee notes. Without warning, Modi sought to withdraw banknotes equivalent to 86 percent of the money in circulation in an attempt to crack down on black money and tax evasion.
The focus on more pressing domestic matters was understandable. While India ranks in the top ten nations that the U.S. buys goods from, the trade deficit between both is nowhere near the levels that has dragged China into Trump’s cross hairs.
“Trump is not a threat to India,” said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. “It is the timing of its ambition to industrialize that is a bit off. And that doesn’t mean it won’t receive FDI. The country is expected to be one of the few ones with rapidly growing demand. It just means that the government will have to work harder to make it more competitive.”
U.S. Ambassador Richard Verma said at an industry event in New Delhi Friday that relations with India will be a priority for the new administration, and talked up prospects for Indian companies.
Still, Trump’s election adds risks for Asia’s third-biggest economy. There are already existing economic tensions, especially in the technology sector. India’s government has banned Facebook’s free web service and declined to exempt Apple from local sourcing rules.
“Even before Trump, many have had doubts whether robotization, and an increasingly protectionist and less material world are already making it difficult for India to repeat China’s path,” said Nguyen.