What does a Biden presidency mean for the Indian economy?

In today's Finshots, we talk about the economic implications of a Biden Presidency.

The Story

Let’s talk about trade.

India has a trade surplus with the US. Meaning we export a lot more than we import from the country. While that’s great news for policymakers in India, the Trump administration was always extremely concerned about the growing deficit. They believed this deficit could be cured if India stopped imposing heavy duties on certain American imports. They wanted us to open up our markets. But we were kind of sticky about this whole proposition.

And so, sick of India’s protectionist policies and excessive duties on goods like dairy and motorcycles, the US decided to remove us from their Generalized System of Preferences (GSP) program in 2019. Think of GSP as a goodwill program initiated by the US in an attempt to do a bit of charity. If you are a developing country like India, the US will allow you to ship goods to their country at reduced tariff rates. Meaning Indian goods can be priced competitively and our manufacturers will have another market to tend to. But once we were kicked out of the program, the US simply stated that we didn’t deserve to be a part of the GSP because we had failed to provide them with equitable and reasonable access to OUR markets.

This struck a nerve. Shortly after, we went ahead and imposed heavy duties on U.S. products like almonds, pulses, walnuts, and fresh apples. And so, India-US trade relations went from bad to worse.

Ever since both countries have been trying to undo the damage. We have been trying to figure out how to placate the US while also trying to get them to reinstate full privileges under the GSP program.

Now some people believe, with Biden at the helm, things could move quickly. After all, Biden is a seasoned politician, unlike his more transactional predecessor Donald Trump. Even others contest that Biden has no reason to cede ground to India considering American interests are still his top priority. But despite the differing opinions, the general consensus is that the India-US trade deal is unlikely to materialize anytime soon. Most people think it might take another year or two. And that means we will just have to wait and see how things unfold.

Then there is the whole issue surrounding immigration.

Every year, the US issues 85,000 H-1B visas to immigrants. Think of these visas as your golden ticket to paradise. If you’re qualified enough and can get your hands on one of these bad boys, you can live in America, work in America and even apply for a green card (permanent residential status). And Indian IT companies like TCS and Infosys often sponsor H-1B visas to many of its Indian employees. In fact, more than 70% of the visas tend to go to Indians.

However, a few months ago President Trump signed a proclamation that temporarily restricted certain foreign workers from entering and working in the US. These restrictions were applied to a bunch of categories including H-1B visas. And for Indians aspiring to work in the US, this was a pretty devastating blow.

However, Biden has promised to reverse this proclamation. He even announced that he would expand the temporary visa program (including the H1-B policy) to accommodate more skilled foreign workers. So technically, a Biden presidency is good news for Indian IT workers.

And finally, there is Biden’s position on Iran.

For the uninitiated, the Islamic Republic of Iran has been pursuing a very ambitious nuclear program over the past few decades. When other major world powers got wind of this development, they weren’t exactly pleased. Iranians were asked to hold back and they refused to comply. Obviously, the big boys retaliated and negotiations crumbled. Until, in 2015, all parties finally reached a mutually acceptable agreement. They called it-The Joint Comprehensive Plan of Action (JCPOA).

Now it must be noted that the whole initiative was largely spearheaded by the Americans. More specifically, the Obama administration. Unfortunately, when Trump came to power, the US reneged on its promise and walked out of the deal. Since then, the US has been imposing crippling economic sanctions on Iran. And economic sanctions are always complicated. You see, the US government forbid all foreign financial institutions from transacting with the Iranian central bank. This meant Iran could no longer engage with its primary trading partners since all official channels of payment were frozen. Now it’s imperative to ask why foreign countries would comply with this diktat?

Well, most do it because they don’t want to antagonize the Americans. They also do it because they can no longer use the US dollar to transact with Iran. And like most countries, India had no choice but to fall in line, despite the fact that we import a lot of Iranian oil. However, if Biden were to go easy on Iran, maybe we will have it easy transacting with Iran as well. And since, there’s every indication he might in fact choose to negotiate with Iran, this could be a positive development for India.

In any case, for now, it’s safe to say that his priorities will rest with the American people. But hopefully, as things improve back home and his focus shifts elsewhere, he will work on advancing India-US relations once again.

Until then…

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Also don't forget to check our daily brief. In today's issue we talk about why the European Commission is pressing antitrust charges against Amazon, a unique 'Uber for Trucks' startup in China, and the adoption of mobile money in India. Do read the full draft here.