India’s foreign direct investment sector could undergo a transition with US president-elect Donald Trump returning to power for a second time, as per a research report by the State Bank of India.
The report stated that Indian FDI inflows were impacted by the significant regulatory changes that Trump introduced during his first term in order to lure investments back to the country. It further highlighted that if similar policies make a return during his second term, it could pose immense challenges for emerging markets in countries like India, which trace their economic growth to FDI.
“India may see shifts in foreign direct investments (FDIs) during Trump 2.0. Trump 1.0 administration saw significant regulatory changes aimed at attracting investments back to the US” the report said.
Meanwhile, India has been working on gradually diversifying its FDI sources to minimize any possible decline.
The report said that India is no longer dependent on the traditional sources of FDI inflows as it has been introduced in several new sectors. In contrast to a decade back, the country has now attracted investment in a wide array of industries, including renewable energy, sea transport, medical devices, and surgical appliances.
In addition, almost 12 emerging sectors seem promising to revive any decline in investments in traditional sectors, in case global investment trends shift under another Trump administration.
The report also mentioned that Trump 2.0 would prove to be a mixed bag of challenges and opportunities.
India’s trade and investment landscape may experience some short-term volatility due to factors such as potential increases in US tariffs, stricter H-1B visa policies, and a strong dollar.
However, at the same time, these challenges could be vital in fueling India’s long-term growth by encouraging the expansion of its manufacturing sector, diversifying export markets, and promoting greater economic self-reliance.
Despite the tariffs imposed during Trump’s first term, India has managed to maintain a merchandise trade surplus with the US, indicating strong exports with even more potential to strengthen trade relationships by capitalizing on emerging sectors and reducing dependency on traditional industries.
India will be closely observing US developmental policy in the coming months.