India could see a shift in foreign direct investment (FDI) trends in the second term of Donald Trump (Trump 2.0) as President of the United States, says a research report by State Bank of India.
The report highlighted that under his first term Trump 1.0, the Trump administration made sweeping regulatory changes aimed at attracting investments back to the U.S., which impacted FDI inflows globally including India.
It added that if similar policies are reintroduced in Trump 2.0 also, it could create challenges for emerging markets like India, which rely on FDI as a significant driver of economic growth.
“India may see shifts in foreign direct investments (FDIs) during Trump 2.0. Trump 1.0 administration saw significant regulatory changes aimed at attracting investments back to the US” the report stated.
However, the report also noted that India has been gradually diversifying its sources of FDI, and this trend could serve as a buffer against any potential decline.
It said “India is no longer dependent on the traditional sources of FDI inflows… unlike the recent past, FDI is now coming in many new sectors”
Unlike a decade ago, when most FDI inflows came from a limited number of traditional sectors, India is now attracting investment in a wide array of industries, including renewable energy, sea transport, medical devices, and surgical appliances.
The report added there are up to 12 emerging sectors showing strong FDI interest, which could help offset any loss of inflows in conventional sectors if there is a shift in global investment patterns under another Trump administration.
The report also mentioned that Trump 2.0 would also present India with a mixed bag of challenges and opportunities.
In the short term, the potential for increased U.S. tariffs, more restrictive H-1B visa policies, and a stronger dollar could bring some volatility to India’s trade and investment landscape.
However, in the long term, these challenges might also encourage India to expand its manufacturing capabilities, diversify export markets, and focus on becoming economically more self-reliant.
Notably, India has maintained a merchandise trade surplus with the U.S. despite tariffs imposed during Trump’s first term.
This indicates that Indian exports have remained resilient, and there is potential to strengthen this trade relationship further by capitalizing on emerging sectors and reducing dependency on traditional industries.
In the coming months, India will continue to monitor U.S. policy developments closely.
