According to analysts at Nomura, the viability of the offshoring model adopted by Indian software companies could be affected by President Donald Trump’s ‘America First’ goal.

Taking a tougher stance on immigration and called for a reassessment of U.S. foreign policy positions, the Trump administration have steered toward policies that involve more trade protectionism since taking office earlier this month. Concerns about the impact they will have on other countries, particularly among emerging markets have been raised by such moves.

“Immigration restrictions are the main source of India’s vulnerability,” said Sonal Varma, chief India economist at Nomura, in a note. “The viability of the offshoring model of Indian software firms would be at risk.”

The issue of reform of the H-1B visa is reportedly being looked into by Trump’s administration. Proposal of scraping of the existing lottery system used to award the visas and a possible replacement system would favor visa petitions for jobs that pay the highest salaries has been made by Trump’s senior policy adviser Stephen Miller, Reuters reported, citing sources.

Either directly or through outsourcing firms such as Indian software company Infosys, many tech companies in Silicon Valley tend to hire Indians in technical roles. the H-1B system is set up for companies to exploit and hire low-wage foreign workers in place of Americans, critics of the system claim.

It could also affect remittances from the U.S., if there is a curb on hiring Indian nationals stateside because of reforms to the H-1B program, Varma pointed out. About $10.96 billion – nearly 16 percent of the total inflows – was sent to India from the U.S. and the country was the second largest source of remittance for India in 2015, behind Saudi Arabia, World Bank data showed.

According to the Nomura report, Indian exports in industries including pharmaceuticals, textiles, gems and jewelry and auto products, could be hurt due to increased trade protectionism. However, the impact would be relatively less than other trade oriented emerging markets given India’s domestic demand-driven economy, Varma said.

“India is fundamentally in a strong position due to sharply lower fiscal and current account deficits since the taper tantrum, lower inflation and more sustainable growth prospects due to continued productivity enhancing reforms instituted by the Modi government,” she said.

It should somewhat cushion the impact from higher U.S. rates and a strong dollar, given the prevalence of equity over debt flows to India, Varma added.

India stands to benefit as well on the political front. Trump spoke to Indian Prime Minister Narendra Modi in his first few days in office. Strengthening of the bilateral relationship in broad areas such as the economy and defense was the issue of the talks between the two leaders, an official statement said. To ensure the United States retains some type of influence in the Asian region and to counter China’s growing dominance in Asia, Washington needs India, policy experts reckon.

Trump also likely saw a nuclear India as a real check to Pakistan, Nomura’s Varma added.

(Adapted from CNBC)

Categories: Economy & Finance