The Impact of the Upcoming US Elections on the Indian Economy

As the world’s largest economy, the USA, approaches its presidential elections, the effects of this democratic process are felt far beyond its borders. For India, the fifth-largest economy with a GDP of $3.5 trillion, the policies and leadership that emerge from the White House have historically had significant implications. It is crucial for stakeholders in both nations to understand these potential impacts as they navigate a rapidly evolving global economic landscape.

Historical Context: US Elections and the Indian Economy

The influence of US presidential elections on the Indian economy is evident through several administrations, each leaving a unique mark.

• 2020 (Joe Biden): As the Democratic presidential candidate, Joe Biden focused on enhancing US-India relations by boosting trade, investment, and strategic cooperation. His policies aimed to deepen economic ties and address global challenges, potentially benefiting the Indian economy through stronger bilateral partnerships.
• 2016 (Donald Trump): The “America First” policy and tighter visa regulations led to a 10% drop in H-1B visa issuances, affecting India's $150 billion IT industry. However, strategic partnerships were strengthened, resulting in $15 billion worth of defense deals being signed.
• 2008 (Barack Obama): Initially concentrated on recovering the domestic economy following the financial crisis, resulting in a 20% decrease in outsourcing to countries such as India. Nonetheless, increased collaboration in the technology and defense sectors pushed bilateral trade to $100 billion by 2010, greatly benefiting India.
• 2000 (George W. Bush): The US-India Civil Nuclear Agreement, anticipated to create $150 billion in nuclear energy business over the next 20 years, marked a significant milestone.

• 1992 (Bill Clinton): Significantly improved Indo-US relations, with US-India trade increasing from $5 billion in 1990 to $20 billion by 2000.

The Candidates: Policies and Potential Impacts

Republican Candidate: Donald Trump

• Republican Views on India: Typically view India as a key ally in countering China's influence in Asia. Between 2016 and 2019, trade between the two countries grew from $115 billion to $146 billion.
• Trump’s Policies: Highlighted the strong bilateral ties through defense and energy agreements, but restrictive immigration policies caused a 13% drop in H-1B visa approvals for Indian professionals. His ongoing campaign maintains a firm stance on immigration and trade while pushing for deeper strategic and defense partnerships, with potential deals valued at around $20 billion.

Democratic Candidate: Kamala Harris

• Democratic Views on India: Advocate for a balanced strategy that supports human rights and democratic values while fostering economic and strategic partnerships. Under the Obama administration, bilateral trade increased significantly, rising from $46 billion in 2008 to $100 billion by 2016.
• Harris’s Policies: Focuses on enhancing US-India relations by prioritizing technology, climate change, and healthcare. Her Indian heritage brings a cultural and diplomatic connection that could strengthen bilateral ties and boost trade by 10-15%.

Impact on the Indian Economy

Rising Work Visas

The growing number of Indian nationals working in the US means more remittances are being sent back to India, which helps bolster the country's foreign exchange reserves. India remains the top global recipient of remittances, with the US accounting for about 10.5% in 2022. This influx is vital for stabilizing the Indian rupee and has also supported India's economic growth.

Rising Student Visas

The increase in Indian students studying in the US has a mixed impact on the Indian economy. While it can result in a brain drain, as some students choose to stay in the US, it also brings benefits. Many return to India with valuable skills and experience, boosting the local workforce and contributing to economic growth. These students often maintain ties with the US, enhancing business and cultural connections that can drive trade, investment, and collaboration. Additionally, the remittances they send home further support the Indian economy.

Projected Economic Impacts

If Republicans Win:

Ongoing strategic and defense cooperation could increase defense imports from the US by 25%. However, restrictive immigration policies might challenge the $150 billion IT and services sectors, with potential annual losses estimated between $5 and $10 billion. Historically, Republican administrations have seen India’s share of US imports grow significantly, with increases of 12.47 basis points during President Bush's tenure and 8.82 basis points during President Trump's tenure.

If Democrats Win:

Expanding collaborations in technology, climate, and healthcare could create new opportunities for Indian industries. More liberal immigration policies might benefit the Indian workforce in the US, potentially increasing H-1B visa approvals by about 20%. During Democratic administrations, India’s share of US exports has grown more pronounced, with expansions of about 6.25 percentage points under both President Obama and President?Biden.

Resilience of the Indian Economy

In the past twenty years, India has demonstrated impressive resilience and growth, with its GDP rising from $500 billion in 2000 to $3.5 trillion in 2023. This robust domestic market and expanding global presence help shield the country from international uncertainties. Additionally, India's strong alliances and bilateral relationships further enhance its resilience.

• QUAD: India’s participation in the Quadrilateral Security Dialogue with the US, Japan, and Australia enhances its strategic role in the Indo-Pacific region, fostering both economic and security cooperation.
• Russia: India’s long-standing defense and energy partnerships with Russia, including the acquisition of S-400 missile systems, highlight its diversified strategic alliances.
• Middle East: India’s expanding economic ties with the Middle East, especially through investments and energy imports from countries like Saudi Arabia and the UAE, underscore its multifaceted foreign policy.

These strategic partnerships enable India to adeptly manage external political shifts, ensuring ongoing growth and stability.

Conclusion

The outcome of the upcoming US elections will have profound implications for the Indian economy. While the exact effects will depend on the new administration's policies, India's robust economic fundamentals, strategic alliances, and resilience provide a strong foundation to navigate these changes. To maintain growth and foster continued collaboration between these two influential democracies, Indian businesses, and policymakers must stay vigilant and agile, ready to adapt to potential shifts in US-India relations.

Sources

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