How will New Delhi deal with insular economic policies?

While the Modi government has invested a lot in foreign policy in its three years in office, New Delhi can not insulate itself from the political and economic disruptions globally. More and more countries are electing leaders, who are inward looking. Apart from opposing free trade, such leaders are also adopting an increasingly anti-immigrant attitude. US President, Donald Trump during the course of his election campaign, spoke against the Free movement of goods, services, investment and labour, which are the key pillars of free trade. Trump promised either to scrap or renegotiate all ‘unfair trade deal’ and reform the H1B visa scheme, because according to him such deals and schemes are snatching jobs from the American people.

Keeping with his election promise, Trump administration on his very first day in office, terminated the Trans-pacific partnership (TPP). Recently the Trump administration also revised H1-B visa rules. According to new visa regime, the minimum wage of an H1B visa holder is supposed to be $130000 per annum. This clause will make Indian software professionals uncompetitive in the American job market. The New H-1B visa regime also changed the definition of ‘Speciality occupation’. Now foreign workers have to produce relevant documents to prove that they fall under the ‘Speciality occupation’ category. As a result, it will become almost impossible for Indian software programmers to secure entry level computer programming jobs.

India has raised this issue with US administration at the official level. Finance Minister Arun Jaitley took up the H-1B visa issue strongly with US commerce secretary Wilbur Ross in his recent visit. Going one step further, the Union Minister Nirmala Sitharaman issued veiled threat to US saying “Let us also understand that not just Indian companies in the US, several big US companies are in India too. They are also here, they are earning their margins, they are earning their profits which goes to the US economy.”

Interestingly, notion of transfer of American jobs to other countries is totally misplaced, because findings of a study of Ball State University, ‘The Myth and Reality of Manufacturing in America’ (2015) suggest that only 13 percent of manufacturing job losses are attributable to trade or relocation of the factory to the other countries, while the rest to automation. The study further estimates, that American metropolitan areas may lose more than half (55 percent ) of their current jobs as a result of automation in the next two decades.

It may be pertinent to point out, that Former US President, Barack Obama in his farewell address had made the point, that “The next wave of economic dislocations won’t come from overseas. It will come from the relentless pace of automation that makes a lot of good middle class jobs obsolete,” President Obama said in his farewell address.

Following the footsteps of US president Trump, Australian Prime minister announced to abolish 457 Visa program, and replace it with new visa regime to ensure that Australian get preference in job selection. Mr. Turnbull commented “ The new system would be manifestly, rigorously, resolutely, conducted in the national interest. The migration program should only operate in our national interest. This is all about Australia’s interest.” Many have viewed this new change in visa rules as an embarrassment for the Indian government as it was announced almost right after Turnbull’s India visit.

Prime Minister Narendra Modi put forward India’s concerns regarding the changes in visa regulations, ,for skilled professionals during a telephonic conversation with Premier Malcolm Turnbull on May 2, 2017.

This change in the visa regime will impact Indian techies badly as it will become almost impossible for Indian techies to get job there in America and Australia. Indian were the biggest beneficiaries of H-1B visa program. In the 2014, 70 ℅ of total H-1B visa petitions approved were for Indians.

These inward looking policies are likely to impact the Indian service industry. According to the Indian Brand Equity Foundation, India’s technology and BPM sector (including hardware) is likely to generate revenues of US$ 160 billion during FY16 compared to US$ 146.5 billion in FY15. The Indian IT and ITeS industries, which draw a major part of their earnings—60% and upwards—from the US market, will suffer if US companies reduce their outsourcing spends.

Indian strategy

Firstly, there needs to be a clear understanding of the fact, that while on strategic issues we have convergences with certain countries, insular policies of leaders – both on the right and left – will harm India. While we can not change the orientations and policies of such leaders, we should be more realistic in our assessments and understanding.

Second, the Modi government has already understood many of these disruptions and their likely impact on the Indian economy. It needs to be credited for launching programs like ‘Start-up India, Stand-up India’ and Digital India for encouraging entrepreneurship and innovation while understanding the relevance of technology. The results of these programs may take time, but they have already shifted the conversation. New Delhi does not have to look beyond the example of Israel, which has achieved immense success in the sphere of start-ups in recent years.

The Modi government also needs to be lauded for realizing that while many parts of the world are becoming more and more insular, India’s neighbourhood is keen to enhance connectivity and strengthen economic linkages. Efforts at integrating with neighbouring countries like Bangladesh, Bhutan, Nepal and Myanmar in this sense are important. The next step should be to ensure that these countries can benefit from programs like ‘Start-Up India’ and ‘Digital India’.

Finally, while Modi has sought to reach out to the diaspora, he should encourage more and more IT professionals who may have been hit by visa restrictions to contribute to India’s next technological revolution and also to contribute towards the success of start-ups.

In conclusion, India should look at the current disruption as an opportunity, while being pragmatic and understanding the key challenges.