Mumbai: India is less vulnerable to the policies pursued by the Trump administration in the United States as compared to some of its emerging market peers like China, Hong Kong, Philipines, Indonesia and Malaysia as the domestic economy is currently in a strong position with lower fiscal and current account deficit.
Stating that India’s vulnerability to Trumponomics would be neutral, analyst at Nomura Financial Services said India is fundamentally in a strong position due to lower fiscal and current account deficits and compared to most other emerging markets, India’s economy is more internally driven and less exposed to trade.
According to it, tighter immigration norms are the main source of India’s vulnerability as the viability of the offshoring model of Indian software firms would be at risk. Increased US trade protectionism will also hurt India, but more indirectly, as India is not a part of the Trans-Pacific partnership (TPP).
A border tax or an across-the-board tariff increase could hurt India’s major export products to the US like pharmaceuticals, textiles, gem & jewellery and auto products.
“Higher US rates and a stronger dollar will undoubtedly slow portfolio flows, but given the preponderance of equity over debt flows into India, the impact should be relatively less than in other EM economies,” said Sonal Verma, economist at Nomura India.
On China, analysts at Nomura believes that a trade war with US would significantly harm the Chinese economy and escalation of geopolitical risk in East Asia would increase the risk premium and result in capital outflow from the region.
Hong Kong, which is an entrepot between China and US would get impacted as declining trade volume would be negative for local business in packaging, container ports and trans-shipments.
The financial services sector and property market, which accounts for 25 per cent of Hong Kong’s GDP could also take a severe beating if US protectionism and deteriorating relationship between the United States and China sparks a global financial turmoil for an extended period of time.