Let us wait and watch, say experts...
New Delhi: US President Donald Trump's tough talk on trade and economic policies has emerged as a fresh risk for the Indian economy, which is recovering from the impact of demonetisation.
While it is too early to assess the impact of any possible policy changes in the US, several sectors of the Indian economy as well as exports may be hurt if Trump implements the changes he has talked about. Experts and policy-makers are adopting a `waitand-watch' stance.
“Trump has made it very clear that protecting American interests is his main priority. His focus is on getting jobs and manufacturing back to the US. This could have an impact on H-1B visas for India. We have to wait and watch as to the stance the Trump administration takes on the intellectual property issue,“ said Biswajit Dhar, professor at JNU.
“The second issue is the trade surplus that India enjoys vis-a-vis the US. Past administrations have been pressing India to lower the bilateral trade imbalance. The stand taken by the new administration on this issue is something that we would have to wait and watch. An indifferently performing global market has already left its adverse impact on India's exports over the past two years. If Trump implements his much publicised inward-looking policies, Indian businesses would need to seriously re-think their strategies,“ Dhar said.
Two-way trade with the US has shot up more than fivefold, from about $19 billion in 2000 to over $100 billion in 2014, and the US is currently India's second largest trade partner and the largest export destination, according to industry estimates. Both sides have vowed to increase their bilateral trade turnover to $500 billion in the years ahead.
Experts said the government and the RBI needed to push reforms and policies to ensure that any sudden impact from the kind of policies Trump has vowed may be ab sorbed. “Employment is going to be a major policy issue. Similar protectionist policies are being pushed in the European region. It would have a significant impact on India's services sector. We need to have policies that would result in transformative growth and absorb any drop in employment due to global protectionist policies,“ said N R Bhanumurthy , professor at National Institute of Public Finance and Policy.
“IT and IT-enabled services may feel an immediate impact... Both trade and foreign capital flows are expected to see some dent if he implements the policies that he has talked about. The RBI needs to be more cautious in dealing with the external sector policies, especially the ex change rate and capital flow policies,“ he added.
India Inc said any reversal of economic and free trade policies was likely to hurt global growth, and pointed to the investment in the US by Indian companies. Any upheaval in the global economy against a backdrop of slowing growth could hurt India's economic expansion -the Indian economy is estimated to grow by 7.1% in 2016-17.
“While we welcome the America First' strategy of ` President Trump, we hope that it will not lead to a new era of protectionism. The US has always been a champion of free trade and economic integration. A reversal of this stance would indeed be seriously detrimental to global growth,“ Chandrajit Banerjee, director-general at the Confederation of Indian Industry (CII), said.
He said Indian companies had invested in around 40 US states, operating in sectors such as IT and healthcare, among others.“Nearly 100 Indian companies have invested $15 billion in the US economy and generated around 1 lakh jobs. These companies are creating and saving jobs, engaging in research and development as well as in corporate social responsibility initiatives --the tangible benefits of such FDI therefore flow directly to the local communities in which they operate,“ he said.
Tremors in hunting ground shake IT
Bengaluru: Donald Trump's maiden presidential address on Friday could not but have been unnerving for India's biggest export industry -IT services. Close to 75% of the industry's $150 billion revenue comes from exports, 60% of which are to one country -the US. Worse, Trump's `Buy American, Hire American' campaign has the potential to hit the industry on both fronts. It could persuade US companies to slow down their IT outsourcing to foreign (primarily Indian) companies.And given that Indian IT services companies have built their entire model on the basis of moving most of the work in a contract to India -what's called offshoring -`hire American' policies could force them to substantially rework that model. And that will not happen without a sharp squeeze in profit margins.
Tom Reuner, managing director of US-based IT advisory firm HfS Research, said the timid hopes that Trump would moderate his views as President have evaporated. “The centrepieces of his inauguration speech were jingoism and protectionism,“ he said.
Already , several moves have been initiated to make it more difficult for Indian IT services firms to deal with US contracts. These include efforts to make US work visas more dif ficult to obtain. An essential ingredient of the IT outsourcing model is to send Indian engineers to the US to understand customer requirements and finally implement and test them, though the substantial in-between work of software development would be done in India. For this reason, Indian IT companies are the biggest users of US work visas like H-1B and L-1. New legislation has been introduced seeking to raise the minimum wage under H-1B to $100,000; that's 50% over the median wage of $61,000-$71,000 that most companies now pay.
Nasscom president R Chandrashekhar says most of these legislations fundamentally discriminate against Indian IT companies. They invariably make the provisions applicable only to companies that have more than 50% of their employees in the US on H-1B or L-1 visas. Only Indian companies would fall in that category. So, even though rivals like IBM and Accenture bring in significant numbers on H-1B, they remain unaffected because they have a large base of local US employees.“If low wage employees are brought into the US, how does it matter whether they are being brought in by Indian companies or others?“ he asks.
Visa pressures and other business requirements have already made Indian IT companies increase their efforts to hire more locals. Trump could compel an acceleration in that trend.
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