The re-election of Donald Trump as the President of the United States in November, 2024 is a geopolitical event with profound implications for India. As the world’s largest democracy, India has enjoyed a multifaceted relationship with the U.S., and Trump’s return to power signals both challenges and opportunities for India’s economic and strategic trajectory. Through a data-driven lens, the impact of Trump’s policies on India’s debt markets, exports, and geopolitical alliances is poised to reverberate across various sectors.
Under Trump’s administration, policies favouring tax cuts, deregulation, and increased borrowing could lead to an escalation in U.S. interest rates. India’s bond market, which witnessed an inflow of $18 billion in foreign portfolio investments (FPI) in FY2023, stands to lose its sheen in the face of a more lucrative U.S. market. This shift would trigger significant capital outflows from India, causing a depreciation of the Indian rupee. In 2023, the rupee averaged ₹82 per U.S. dollar, but Trump’s policies could push it closer and closer to ₹85 per dollar, increasing India’s external debt burden, which stood at $682 billion in June 2024.
India’s equity market, the fifth largest globally, may encounter volatility with a possible 15-20% correction in sectors heavily reliant on U.S. exports, such as IT and pharmaceuticals. India’s IT sector, which contributes $194 billion in export revenues, could be hit by potential restrictions on H-1B visas – a policy Trump championed during his first term, with a continued thrust in the second term.
India’s trade with the U.S., valued at $128 billion in FY23, might face hurdles under Trump’s protectionist stance. However, his continued emphasis on curbing China’s economic hegemony presents an opportunity for India to emerge as a preferred alternative in global supply chains. Sectors such as electronics manufacturing, which grew at a CAGR of 13% FY23, are likely to benefit from the relocation of U.S. companies out of China to India, especially under initiatives like the Production Linked Incentive (PLI) scheme.
Moreover, India’s pharmaceutical exports to the U.S., valued at over $8.7 billion in FY24, are vulnerable to stricter U.S. Food and Drug Administration (FDA) regulations, which could affect the sector’s profitability. A rise in U.S. tariffs could also adversely impact India’s textiles sector, with the US accounting for approximately 27% of India’s total textiles export in 2023.
Trump’s re-election reignites the strategic dimension of the U.S.-India relationship, particularly in countering China’s influence in the Indo-Pacific. The Indo-Pacific region, which accounts for 40% of global GDP, remains critical to India’s maritime and defense strategy. With the U.S.-China trade tensions intensifying, India’s role in the Quadrilateral Security Dialogue (Quad) is expected to gain prominence, bolstering defense ties with the U.S. In FY24, India allocated approximately $75 billion to its defence budget, and with U.S. defence exports to India standing at $20 billion since 2008, Trump’s aggressive stance on China could further solidify Indo-U.S. defence collaboration.
However, Trump’s unpredictable foreign policy could challenge India’s delicate balance with Russia, especially concerning energy security. Russia accounted for 42% of India’s crude oil imports between January and September 2024, and any pressure from a Trump-led U.S. on India to reduce its ties with Russia may strain bilateral relations.
The return of Donald Trump to the White House heralds a period of economic and geopolitical recalibration for India. While the U.S. market offers opportunities for India’s strategic positioning in global trade and defence, protectionist trade measures and financial volatility may pose significant challenges. India must navigate this evolving landscape with astuteness to safeguard its economic interests while bolstering its global standing as a counterweight to China.