Trumponomics to have minimal impact on India, says Nomura

MUMBAI: Japanese financial services major Nomura has downplayed the impact of the protectionist trade policies of the US President Donald Trump on the country as it sees only 10 bps hit on GDP at 6.8 per cent in 2017. It is also quick to add that Trumpnomics will hit the domestic software exporters, as 86 per cent of the H1B visas in the past have been cornered by Indians.

"We expect this hit on growth to be only transitory, as remonetisation, wealth redistribution and lower lending rates should result in growth returning to above 7 per cent from the second half of 2017," Nomura said in a weekend report.

With the growth momentum hit hard by the notes ban, Nomura had earlier projected GDP growth to dip to 6.9 per cent in 2017 from 7.1 per cent in 2016, with a sharp slowdown in the first half of the current year.

The agency said its "downside risk scenario" is based on the assumptions of a large fiscal stimulus but greater inflation pressures forcing the Fed to hike its record low rates four times this year, quick implementation of mediumscale US trade protectionism, tighter immigration policies and some retaliation by way of exiting or renegotiating FTAS.

Other risks also include imposing an across-the-board tariffs, or targeted tariffs on specific imports, or border taxes, incentives to US firms to repatriate their overseas profits, deportation of illegal immigrants and reducing the inflow of new ones, a noticeable rise in geopolitical tensions. Trumponomics refers to economic policies of te new US President and assumes a fiscal stimulus to boost growth from the third quarter, two Fed hikes this year, low-scale US trade protectionism and tighter immigration policies, among others.

Noting that the country's vulnerability to Trumponomics is "neutral" with restrictions on immigrations as the main concern, Nomura said it "currently projects GDP growth to slow to 6.9 per cent in 2017 from 7.1 per cent in 2016, largely reflecting a weak first quarter owing to demonetisation, followed by a sharp V-shaped recovery in second half of 2017".

"In our risk scenario, we would expect growth to slow only marginally to 6.8 per cent, mainly due to weaker trade volumes and tighter financial conditions," it added.

As per Nomura, Trump plans to raise H-1B minimum salaries, give preference to Americans over foreigners, limit green cards and scrap H-1B extensions, can hit the country. Besides, increased US trade protectionism will also hurt India, but more indirectly, as India is not a part of the now scrapped TransPacific Partnership.

"The US accounts for about 15 per cent of the country's goods exports, which is a paltry 2 per cent of US imports. A border tax or an across-the-board tariff increase could hurt the country's major exports to the US such as pharma, textiles, gem & jewellery and auto products. However, Nomura noted that geopolitically, India stands to benefit as Trump seems to believe that a nuclear India is the real check to Pakistan.