THE CONTEXT: The Trump administration’s “America First” agenda has redefined U.S. policy through aggressive executive actions on immigration, trade, and technology. While India-U.S. ties have strengthened diplomatically, the economic ramifications of Trump’s policies demand scrutiny, particularly in areas like remittances, trade tariffs, and AI-driven labor disruptions.
THE BACKGROUND:
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- Cold War Estrangement: Post-independence, India’s non-aligned stance clashed with US-Pakistan alliances (CENTO, SEATO). The 1971 Indo-Soviet Treaty and US support for Pakistan during the Bangladesh War deepened fissures.
- Modi-Trump Era: Personal rapport between leaders (e.g., “Howdy Modi!” rally in 2019, “Namaste Trump” event in 2020) and institutionalization of Quad (2020) elevated ties to a “Comprehensive Global Strategic Partnership”.
- Trump 1.0 Legacy: 25% tariffs on Indian steel/aluminum (2018) disrupted $12.7 billion in exports; India retaliated with tariffs on 28 US goods. 2019 revocation of Generalized System of Preferences (GSP) status impacted $6.3 billion in exports (textiles, engineering goods). Energy Sanctions forced India to cut oil imports from Iran (23% of total imports in 2018) and Venezuela, increasing dependency on costlier alternatives.
CURRENT SCENARIO:
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- Immigration Crackdown: Over 18,000 Indians are on the “final removal list” for deportation. An Executive Order (EO) targets the jus soli principle, impacting diaspora families despite legal challenges. Denial rates for Indian applicants rose to 24% in 2024, and the minimum salary was raised to $120,000. H-1B curbs threaten $70.5 billion in IT exports (40% of India’s service exports) and 150,000 jobs.
- Trade Tariff Weaponization: ‘America First Trade Policy’ proposed a 10% universal tariff and 25% sectoral tariffs on pharmaceuticals, textiles, and marine products. $77.5 billion merchandise exports (2024) are at risk, including pharma of $16.5 billion (21.9% share of US imports) and textiles of $12.7 billion, now facing 15% retaliatory tariffs.
- AI & Labor Displacement: The Stargate AI Project is a $500 billion initiative to build AI infrastructure and reduce reliance on foreign tech labor. It endeavors to replace mid-level Engineers with AI; Meta plans to replace 30% of mid-level coders with AI by 2025. Over 25% of Google’s code is AI-generated; Indian IT firms face $7B revenue loss per 10% visa decline.
INDIAN CONTEXT: NAVIGATING GEOPOLITICAL PRESSURES AND DEMOGRAPHIC REALITIES
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- Fiscal Reforms & Energy Transition: ₹20,000 crore allocation for small modular reactors (SMRs) R&D, targeting 100 GW by 2047. ₹1,500 crore allocation for solar grids, with customs duty cuts (solar modules: 40%→20%) to boost domestic manufacturing. ₹1.8 lakh crore PLI schemes extended to green hydrogen (target: 5 MMT by 2030) and grid-scale batteries, fostering partnerships like Tata-Airbus for C-295 aircraft.
- Diplomatic Balancing: GE-HAL F414 engine deal (80% tech transfer) and 31 MQ-9B drones ($3.3B) exemplify India’s “multi-alignment” strategy. Defense imports from U.S. surged to $25 billion (2024), but 68% of capital outlay (₹1.8 lakh crore) is reserved for domestic firms under Positive Indigenization Lists. U.S.-India MoU on 28nm chip fabrication (Gujarat’s Dholera) and iCET collaboration on AI ethics aim to counter China’s “tech hegemony”.
THE CHALLENGES FOR INDIA:
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- Remittance Dependency: India remains the top recipient of remittances globally ($125 billion in 2024), with 23% from the US (up from UAE’s 18% in 2020). Kerala’s economy relies on remittances for 19% of its GDP, while Punjab and Goa derive 12% from Gulf inflows. Trump’s ICE raids target 725,000 undocumented Indians; deportation of 18,000 on the “final removal list” could drain $18B/year.
- Tariff Retaliation: Unlike China, India lacks retaliatory capacity (e.g., 28-product retaliation in 2018 had minimal impact). 65% of pharma APIs and 80% of solar modules imported from China heighten vulnerability.
- Lagging in the Tech Arms Race: India spends 0.64% of GDP on R&D vs. US (3.5%) and China (2.4%). India ranks 14th globally in AI research (1.4% share) behind Hong Kong and Singapore.
- Demographic Dividend at Risk: Only 8.25% of graduates work in roles matching qualifications; 50% are in low-skill jobs. 1.5M annual STEM graduates, but only 10% are industry ready. 70% of engineering syllabus irrelevant to AI/robotics; IITs lag in patent filings.
WAY FORWARD: STRATEGIC SOLUTIONS FOR INDIA’S ECONOMIC RESILIENCE:
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- Leveraging Multilateralism for Tariff Exemptions: Secure exemptions for 21 critical drugs (e.g., Trastuzumab for breast cancer) under WTO’s Article XXI, as done in 2020 for COVID-19 vaccines. Negotiate H-1B quotas (e.g., 50,000 reserved visas) via Quad Semiconductor Supply Chain Initiative (2024 MoU), mirroring Japan’s 2023 visa carve-outs for Indian engineers.
- AI-Integrated Skilling for Demographic Dividend: Mandate AI/robotics labs in 10,000 schools by 2026. Adopt Germany’s Dual Vocational Training System via Tata-ISRO Quantum Labs8, targeting 5M AI-skilled workers by 2030.
- PLI 2.0 for Global Value Chain Integration: Scale Tata-PSMC’s Dholera Fab (50,000 wafers/month by 2026)8 using ₹76,000 crore PLI 2.0 outlay. Replicate South Korea’s LG Chem model – 5 GWh lithium-ion plants in Gujarat/Assam (₹10,000 crore subsidy via ACC PLI). NITI Aayog’s 2024 report recommends “China+1” strategy with 25% tax rebates for diversifying supply chains.
- Quad-Taiwan Synergy in Tech Governance: Partner with Taiwan’s TSMC for 5nm chip tech in Dholera (leverage 2024 India-Taiwan FTA talks). Forge India-Australia Critical Minerals Pact (2025), mirroring US-Japan 2023 deal, to cut reliance on China from 80% to 40% by 2030. Align with UNCTAD’s 2025 Agenda for “Digital Solidarity” in Global South.
- Countering Unilateralism via EU-India Digital Pact: Impose 2% equalization levy on US tech giants (Meta, Google) – potential ₹12,000 crore revenue. Adopt ViDA package (2025) for GST on cross-border digital services, ensuring ₹7,500 crore additional mop-up. India must lead G77 in UN Tax Convention to prevent policy asymmetry.
- Diaspora Bonds: Issue ₹50,000 crore Remittance-Backed Infrastructure Bonds (Nepal model)76, targeting NRIs in the Gulf and US. Kerala’s returning workers boosted MSME exports by 18% via the ‘Karuthal’ scheme (2023).
THE CONCLUSION:
India’s path hinges on “Strategic Multi-Alignment” – blending Quad’s tech prowess, EU’s tax frameworks, and Global South solidarity. The 2025 inflection point demands converting Trumpian disruptions into Vishwaguru opportunities. By 2030, a $5 trillion economy is feasible if reforms harness AI’s 25% GDP potential while insulating 4M jobs via PLI 2.0.
UPSC PAST YEAR QUESTION:
Q. What introduces friction into the ties between India and the United States is that Washington is still unable to find for India a position in its global strategy, which would satisfy India’s National self- esteem and ambitions” Explain with suitable examples. 2019
MAINS PRACTICE QUESTION:
Q. India’s response to Trump’s ‘America First’ policies requires a delicate balance between strategic autonomy and multilateral engagement. Examine
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