Now that Donald Trump is again the 47th President of the United States of America we have to see how his economic and foreign policies will impact the Indian economy. In the following paragraphs I will discuss few important areas where Trump’s policies will impact the Indian economy the most.
First, the election of Trump as President will put a lot of pressure on the Indian rupee as President Trump is going to reign in the US central bank Federal Reserve as he promised during his campaign. American economy has experienced heavy bouts of inflation during the four years presidency of Mr. Biden due to the Fed printing endless dollars to pump it into the morbid economy during and after the COVID-19 era. That dollar printing eroded the purchasing power of the dollar and consequently raised the prices of every consumer and producer goods that trade against the dollar. Inflation was the main concern of Americans in this election and President Trump promised he will put a stop to the endless dollar printing by the US central bank, the Federal Reserve. As Trump and his team start curtailing the powers of the Federal Reserve and cut its dollar printing sprees, the supply of dollars circulating in the market will go down. On the other hand, as Trump’s foreign policy makes our world relatively more safe and strengthens the position of the United States as a global superpower, the demand for dollars will increase as those countries who were ditching dollars in favor of their local currencies will go back to using dollars again in international trade. The result of this reduced supply and increased demand for US dollars will be a strong dollar. The result of this strong dollar will be a relatively weaker rupee.
The rupee printing sprees from the Indian central bank RBI to support Modi government’s endless resource wasting boondoggle spending programs will make rupee even weaker compared to the dollar. A weaker rupee means even higher inflation for the Indians than what they are facing right now. If RBI tries to reduce the supply of rupees to counter its weakening by raising interest rates, then that will crash Indian stock markets and the economy. The Indian economy is nothing but a house of cards built on a weak foundation of easy rupees printed by the RBI. There is very little real value in the Indian economy. No matter from which perspective we analyze, there are some very tough times ahead for the Indian economy.
Another effect of Trump reigning in the US central bank is that it will crash the Indian stock market, as investors will pull their money out of the Indian stock market while the American stock markets become more attractive. As the economic, financial, and business environment in America improves, investors will remove their foreign investments and move it to the USA. Even before the election of Trump, the FDI (Foreign Direct Investment) in the Indian economy had started slowing down, and after Trump’s election that slowdown will accelerate.
Trump has also vowed to put heavy tariffs on imported items from countries who impose heavy tariffs on American exports, and India is one of those countries. Donald Trump has already warned India about its protectionist policies. Indian exports to America are big (some US $75 billion), and any imposition of tariff by Trump will hurt export earnings very badly. Reduced exports to America combined with weaker rupee (reduced export earning combined with higher import bill) will create a huge balance of payment problem for the Modi government. The dollar reserve that RBI has gathered will quickly dwindle, and India might face the 1990s fiscal crisis again.
RBI and the Modi government can stop this carnage by opening up foreign trade with the USA and the world by reducing its import tariffs, but I see no political will for this. Indian businessmen hate foreign competition. They love government granted monopolies which enrich them as they fleece the Indian public. They will oppose any Modi move to reduce tariffs, and fascist Modi will listen to them because those same businessmen are funding his political power machine!
In foreign policy also Trump is going to be difficult to handle for India. The buying of Russian oil to later sell it to the European countries will stop now. Already the European Union has declared that they will start buying American oil and stop buying Russian oil. This will further reduce India’s export earnings.
Trump’s crackdown of immigration will also reduce foreign remittances to India, which was some US $120 billion last year. As the flow of Indian workers to America slows down, remittances to India will also slow down. This will again adversely affect the Indian economy.
All in all, Trump’s presidency is going to put a lot of pressure on India. India can avoid this pressure by carrying out its own market friendly reforms, but there is no political will for these reforms.
