World

Five Reasons Why India Should Not Fear An Unpredictable Trump Presidency

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Snapshot

Here are the reasons why a Trump presidency will be reasonably good for India.

How concerned should India be about an unpredictable Donald Trump presidency, now just about a week away from inauguration?

Trump’s presser yesterday (11 January) did not inspire much confidence, focused as it was on attacking the media, bringing jobs back to America, diatribes against the pharma industry, and defending himself against intelligence leaks which suggested that Russia had compromising information on him. (Read the full transcript of what Trump said here)

But that’s the man. He has a tendency to talk from the gut, and that is what got him elected. But once he is President, he won’t be able to do everything like how he said it; but important bits of what he intends to do will find their way into law. So India should wait to see how Trump’s statements play out ultimately in the policy sphere.

My first-cut assessment is that a Trump presidency will be reasonably good for India. Here are five reasons why.

#1: Outsourcing. Trump has talked about bringing back jobs, and one sector where India has been taking away jobs from America is software services.

But Indian IT is already in the throes of a major shift, with automation and not labour arbitrage becoming key to growth. This means Indian IT was anyway going to reduce hiring of lower-level competencies.

Under Obama, Indian IT has weathered a steep hike in H1B visa fees. Under Trump, India IT may have to create more jobs onshore in America, hiring a lot locally. Once the Indian majors get the optics of local hiring right, IT will grow again. Trump, moreover, is going to emphasise tech even more, having indicated more investments in areas like cyber security. This is going to increase demand for IT manpower, not reduce it. India will benefit ultimately.

#2: Pharma diatribe. Trump said “we’ve got to get our drug industry back. Our drug industry has been disastrous. They’re leaving left and right. They supply our drugs, but they don’t make them here, to a large extent. And the other thing we have to do is create new bidding procedures for the drug industry because they’re getting away with murder. Pharma has a lot of lobbies and a lot of lobbyists and a lot of power and there’s very little bidding on drugs. We’re the largest buyer of drugs in the world and yet we don’t bid properly and we’re going to start bidding and we’re going to save billions of dollars over a period of time.”

Taking the statement as a whole, it seems that Trump may emphasise bringing down drug prices rather than merely focus on bringing back pharma manufacture back to the US. He is committed to dumping Obamacare, the costly medical insurance scheme. This means he has to focus on lowering drug costs, and this means he has to tame the pharma lobby – which is what he hinted at. Obtaining drugs for medicare will be subject to bidding pressures to bring down prices, and in this scenario, generics will have a larger role to play. Can India, one of the world’s biggest sources of generics, be left out of this process? My guess is no.

#3: Defence. Trump talked about bringing down defence production costs, against through more effective bidding procedures. While this will limit the US defence industry’s ability to gouge profits out of defence budgets, the resultant cost cuts can also benefit India as we become one of the major defence equipment markets for American companies. This will improve our leverage with a Trump administration, since we will be buying American goods and creating local jobs. And we could also be manufacturing in India some of the components of defence equipment as part of set-offs.

#4: Geopolitics. Trump’s softer approach to Russia is good news for India’s own efforts to contain China. The Obama administration’s sanctions against Russia and Vladimir Putin for the latter’s aggressive policies towards former Soviet republics has pushed this traditional Indian ally closer into the Dragon’s embrace. If Trump reverses this at least partially, it will drive a wedge between Russia and China, improving India’s geopolitical options in Asia. And, if additionally, Trump gets tougher on China, India’s choices for strategic alignments improve.

As for Pakistan, no US administration can afford to reduce it to a complete pariah as India would like, but Trump is unlikely to give it as much of a free pass on Islamist terrorism as Obama had given it. India should not be unhappy with this shift in emphasis, even though deterring Pakistan will remain our job.

#5: US revival and growth. Trump did not talk much about his plans for stimulating the US economy, but there is talk of a $1 trillion investment in public infrastructure, which cannot but increase demand for imports from the rest of the globe. The shift of stimulus from monetary to fiscal policy is good for the world, as it will boost demand. The Fed’s zero-interest rate policy helped Wall Street more than the Main Street, as speculators made billions. The shift to fiscal stimulus may mean higher inflation, but it will get the US economy moving faster. There is only so much cheap money can do. For much of the last decade, China was the world’s main growth engine; 2017 could see the US taking over. That is good for everybody, including India.

The key to India gaining an advantage during a Trump administration lies in two things: negotiating better bilateral deals with Trump, for the man is a deal-maker, not a policy-maker. The second key is in Narendra Modi building a good rapport with Trump, something that should be possible given the latter’s known positions on jihadi terror. India needs to leverage the support a section of Indian Americans gave Trump to give him the edge in some battleground states.

In sum, India has no reason to fear a Trump presidency.