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Thursday, November 26, 2020

ExplainSpeaking: How a Joe Biden presidency may impact India’s economy

US Election Results 2020: From more relaxed visa norms to a more liberal trade policy and from lower crude oil prices to help in dealing with climate change, there is much that a Biden presidency can offer India

Written by Udit Misra , Edited by Explained Desk | New Delhi | Updated: November 18, 2020 12:19:10 pm
US President-elect Joe Biden gives an address in Wilmington, Del (Erin Schaff/The New York Times/File)

Dear Readers,

By now it is clear that both Donald Trump’s rise to the White House as well as his exit were products of the electorate’s reactionary responses. In 2016, the Republican voters chose him to thumb their noses at the career politicians such as Hillary Clinton as well as a recoil from Barack Obama’s presidency. In 2020, the Democrats outvoted the Republicans primarily to get rid of Trump.

Trump and his supporters, however, have alleged foul play. Their essential grouse is perhaps best captured in Tom Stoppard’s (a British writer) words: “It’s not the voting that’s democracy, it’s the counting”.

It is another matter that in Trump’s case, it might be more appropriate to quote what Thucydides wrote as long back as 431 BC: “In a democracy, someone who fails to get elected to office can always console himself with the thought that there was something not quite fair about it.”

Anyway, in choosing Biden over Trump, the American voters have most likely changed the course of the global economy. This is why everyone has been so keenly following the twists and turns of the presidential elections in the US.

Apart from the likely reduced uncertainties in global trade, what may be of immense importance is the fact that Biden understands the need to control the Covid pandemic before any sustainable economic recovery can take place — either in the US or elsewhere.

Biden’s approach — in stark contrast to Trump’s — could have a salutary impact on how the US leads the rest out of this tricky phase for the world economy when so many countries are witnessing a strong surge in Covid infections.

So, what might be the impact on the Indian economy, presuming, of course, that Biden manages to seamlessly transition from President-Elect to the 46th President of the US in January 2021?

There are several ways in which the US economy, its health and the policy choices of its government affect India.

For one, the US is one of those rare big countries with which India enjoys a trade surplus. In other words, we export more goods to the US than what we import from it.

Also in Explained | An Expert Explains: Looking back and ahead in US elections–polls, courts, transition

A man wearing a mask as a precaution against the coronavirus reads the Mathrubhumi newspaper that front pages news of President-elect Joe Biden’s win in the US presidential election in Kochi.  (AP Photo/R S Iyer)

A recent analysis by Madan Sabnavis of CARE Ratings shows that over the past 20 years, India has always had a trade surplus with the US. The trade surplus has widened from $5.2 billion in 2001-02 to $17.3 billion in 2019-20. “Trade surplus had peaked at $21.2 billion in FY18 (2017-18) and has moderated to some extent,” points out the report.

In 2019-20, India exported goods worth $53 billion to the US — that’s roughly 17 per cent of all Indian exports that year — and imported goods worth $35.7 billion in return — that’s roughly 7.5 per cent of all Indian imports.

Apart from trade in goods, “India accounts for nearly 5 per cent of USA’s services imports from the World,” according to Sabnavis. Between 2005 and 2019, US services imports from India have grown at a compounded annual growth rate of 14 per cent. In 2019, US imports of services from India were $29.7 billion.

Beyond trade, over the past two decades, the US is the fifth-biggest source for Foreign Direct Investment (FDI) into India. Of the total $476 billion FDI that has come in since April 2000, the US accounted for $30.4 billion — roughly 6.5 per cent — directly. Only Mauritius, Singapore, Netherlands, and Japan have invested more FDI since 2000.

Apart from FDI (or investment in the physical assets inside India), the US also accounts for one-third of all Foreign Portfolio Investments (that is, investment in financial assets) into India. FPI data shows that, as of September 2020, total Assets Under Custody were Rs 33.22 lakh crore and the US accounted for Rs 11.21 lakh crore of this amount.

On trade, Biden is likely to be less obtrusive than the current Trump administration.

Also in Explained | Why the US Election 2020 matters to India

Paintings of US President-elect Joe Biden and Vice President-elect Kamala Harris are displayed on a pavement outside an art school next to lanterns put up for sale outside a shop in Mumbai. (AP Photo/Rajanish Kakade)

In the Trump worldview, trade was a zero-sum game. In other words, a country had to lose for another to gain. Of course, that is not the case most of the time. More often than not, trade is mutually beneficial — while it may be true that it may not be “equally” beneficial to all countries. Under a Biden administration, India’s trade with the US could recover from the dip since 2017-18.

A Biden presidency may also see a renewed push towards a rules-based trading system across the world — instead of outright ad-hocism as was the case under Trump — as well as a move away from the protectionist approach that has been getting strong across the world.

Combined with the control of Covid infections and the economic recovery, the US could yet again provide a growth impulse to the global economy that countries such as India need to boost their exports and grow.

Apart from these very direct ways in which the US is important to India, there are massive policy concerns as well.

For instance, how a US President looks at the H1-B visa issue, affects the prospects of Indian youth far more than the youth of any other country. Under President Trump, who severely curtailed the visa regime, thanks to his policy of “America First”, India had suffered the most. That could change under Biden, who is unlikely to view immigrants and workers from India with Trump-like suspicion. 📣 Express Explained is now on Telegram

Similarly, India’s exclusion from the US’ Generalized System of Preference could come up for reconsideration under Biden.

Children carry placards of US Vice President-elect Kamala Harris during celebrations for her victory at a temple in Thulasendrapuram, the hometown of Harris’ maternal grandfather, south of Chennai, Tamil Nadu (AP Photo/Aijaz Rahi)

Other points of contention between India and US — such as the tricky issue of data localisation or capping prices of medicines and medical devices — have a better chance of getting towards a resolution as we move away from the radical approach of President Trump to the pragmatism of a Biden presidency.

Further, under the Trump administration, the US sanctions on Iran severely limited India’s sourcing of cheap crude oil. For an economy such as India, which needs a regular supply of cheap oil to grow fast, a normalisation of US-Iran relationship (and lifting of sanctions) would be more than useful.

On China, too, while the US apprehensions are unlikely to be fewer even under a Biden administration, it is more likely that a Biden administration will help India against China, instead of clubbing the two together.

Last but not the least, Biden has promised to rejoin the Paris Climate Accord, and this may help countries such as India in dealing with the massive challenges — both technical and financial — on this front.

Of course, many of these benefits may also imply that a Biden administration takes a closer look at civil liberties and democratic rights in India — an aspect to which the Trump administration was largely blind.

Stay safe!

Udit

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