ANY ASSESSMENT of India's growth prospects in the coming year must internalise the ominous global backdrop that the economy confronts.

Markets are abuzz with the frenetic pace of policy pivots under Trump 2.0. But the pressures imposed by the US on the rest of the world pre-dated the election of Donald Trump as US President. The sheer quantum of the pandemic fiscal stimulus in the US, combined with high levels of immigration in recent years, have powered US output to levels much above its pre-pandemic path. In contrast, European growth remains stagnant, and China has disappointed.

This relative outperformance of the US, alongside the resilience that is making disinflation challenging, is underpinning “US exceptionalism.” This has manifested in a strengthening of the US Dollar and uncomfortably elevated US bond yields—all of which have tightened global financial conditions and put sustained pressure on emerging market currencies.

Now add Trump 2.0 to the mix. The Trump economic agenda likely rests on four pillars: imposing import tariffs, slowing net immigration inflows, cutting corporate taxes, and deregulating the economy. The key question is this: will the composite impact of these policies accentuate US exceptionalism, or will they undermine it?

It's not clear. Imposing tariffs and slowing immigration inflows (or accelerating deportations) both constitute “adverse supply shocks”—they will simultaneously hurt US growth and push up prices by pushing up wages. The inconvenient truth is that high levels of immigration made it possible for the US to contemplate a “soft landing.”