Talking Point: India well-buffered against Trump’s ascension impact

“If capital outflows happen, the vulnerability of countries to currency movements will be exposed. However, India is well buffered. I do not expect even a large outflow from the emerging economy to have a very significant impact on rupee as the current account deficit has shrunk to one per cent from the earlier five per cent,” Gokarn, who is currently Executive Director on the board of the International Monetary Fund (IMF) said. 

“Capital outflows will start and India is going to be in the thick of that. But India’s deficit is very narrow, it is a safe space to be in. We are relatively well buffered against global relocation of resources,” he added. The IMF recently released its updated forecast for 2017-18 where it has upgraded the growth projections of the US. For 2017, IMF has projected US to grow at 2.3 per cent as compared to 1.6 per cent in 2016, which is expected to further accelerate to 2.5 per cent in 2018. 

“The upgrade reflects expansion in fiscal stance that Trump has talked about, reviving the domestic manufacturing, etc,” Gokarn said. If the US growth numbers turn out to be the way projected, it would inevitably result in increase in the interest rates. “Until we have a concrete statement on policy instruments, it is premature to start predicting. Though it is necessary to keep an eye on the risks,” he added. The new Trump administration may trigger trade conflict, but all of this is not in the realm of action and India must wait and watch before reaching any conclusion, Gokarn said. 

“All the countries are members of World Trade Organisation (WTO). That framework has put in place a set of rules. So trade war makes it a difficult prospect. This is very premature and actions can be taken according to the WTO protocol,” he said. Gokarn also said that since Trump does not have any track record on policy-making, it is difficult to predict his actions beforehand. 

“Basic issue is that a number of uncertainties are facing us, though we do not know yet what will be the final policy,” he said. In terms of dependence of the IT sector delivery model on H1B visas, he said that the industry is fully capable of innovating around the constraints.