President Donald Trump's 'America First' goal could affect the viability of the offshoring model adopted by Indian software companies, according to analysts at Nomura.
Since taking office earlier this month, the Trump administration have steered toward policies that involve more trade protectionism, a tougher stance on immigration and called for a reassessment of U.S. foreign policy positions. The moves have raised concerns about the impact they will have on other countries, particularly among emerging markets.
"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."
Trump's administration has reportedly been looking into reforming the H-1B visa. Reuters reported, citing sources that Trump's senior policy adviser Stephen Miller proposed scrapping 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.
According to the U.S. Citizenship and Immigration Services, H-1B visas are for foreign nationals working in "specialty" fields including scientists, engineers or computer programmers, and require higher education. The U.S. government awards 65,000 regular H-1B visas every year, which are allocated by lottery and a sizable number of them go to the technology sector.
Many tech companies in Silicon Valley tend to hire Indians in technical roles either directly or through outsourcing firms such as Indian software company Infosys. Critics of the H-1B system have said that the system is set up for companies to exploit and hire low-wage foreign workers in place of Americans.
Varma pointed out that if there is a curb on hiring Indian nationals stateside because of reforms to the H-1B program, it could also affect remittances from the U.S. World Bank data showed the U.S. was the second largest source of remittance for India in 2015, behind Saudi Arabia, and about $10.96 billion - nearly 16 percent of the total inflows - was sent to India.
Increased trade protectionism could also hurt Indian exports to the U.S., including pharmaceuticals, textiles, gems and jewelry and auto products, according to the Nomura report. But given India's domestic demand-driven economy, Varma said the impact would be relatively less than other trade-oriented emerging markets.
"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.
Varma added given the prevalence of equity over debt flows to India, it should somewhat cushion the impact from higher U.S. rates and a strong dollar.
On the political front, India stands to benefit as well. In his first few days in office, Trump spoke to Indian Prime Minister Narendra Modi. An official statement said the two leaders discussed ways to strengthen the bilateral relationship in broad areas such as the economy and defense. Policy experts reckon Washington needs India to counter China's growing dominance in Asia and ensure the United States retains some type of influence in the region.
Nomura's Varma added that Trump also likely saw a nuclear India as a real check to Pakistan.