FDI may shift to US under Trump 2.0 but it will have no impact on FDI inflows into India: SBI report

India may see a change in foreign direct investment (FDI) trends under the second term of Donald Trump (Trump 2.0) as President of the United States, a research report by State Bank of India has said.

The report highlights that under its first term, Trump 1.0, the Trump administration made sweeping regulatory changes aimed at attracting investments back to the US, which affected FDI inflows globally, including into India.

It added that if similar policies are reintroduced in Trump 2.0, it could create challenges for emerging markets like India, which depend on FDI as a key driver of economic growth.

“India may see a turnaround in foreign direct investment (FDI) during Trump 2.0. The Trump 1.0 administration saw significant regulatory changes aimed at attracting investment back to the US, the report said.

However, the report also notes that India is gradually diversifying its sources of FDI, and this trend could act as a buffer against any potential decline.

“India is no longer dependent on traditional sources of FDI inflows… unlike in the recent past, FDI is now flowing into many new sectors,” it said.

Unlike a decade ago, when most FDI inflows came from a limited number of traditional sectors, India is now attracting investments in a wide range of industries, including renewable energy, maritime transportation, medical devices and surgical instruments.

The report said there are 12 emerging sectors that are showing strong FDI interest, which could help offset any loss of inflows to traditional sectors if global investment patterns change under the Trump administration.

The report also mentioned that Trump 2.0 will also present India with mixed challenges and opportunities.

In the short term, the possibility of increased US 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 longer term, these challenges may encourage India to focus on expanding its manufacturing capabilities, diversifying export markets, and becoming more economically self-reliant.

Notably, India has maintained a trade surplus with the US despite tariffs imposed during Trump’s first term.

This shows that Indian exports remain resilient, and there is potential to further strengthen this trade relationship by capitalizing on emerging sectors and reducing dependence on traditional industries.

In the coming months, India will continue to closely monitor US policy developments.