Gita Gopinath's Insightful Fireside Chat On 'Navigating Geoeconomics' At India Economic Conclave2025

Thank you, Mayor, for having me speak at this conclave. You really picked probably the biggest issue of the day, which is geoeconomics. To your question of are we in a structurally changed world, the answer is yes. So we have decisively moved away from the last, I would say, 50, 60 years of global economic integration that relied on countries bringing down tariffs, global trade growing substantially, especially in the 1990s and the early 2000s. We have moved away from that. We are now in an environment where countries are not just thinking about economic efficiency, but they're also thinking about national security and also how to build resilience in their global supply chains. And I don't think we are going back from where we are now.

But that said, in a sense, 2025 was the year when everything changed, with the US raising tariffs to levels that we haven't seen in 100 years. But at the same time, it looks like nothing changed if you look at global growth. Let me just take the case of India. So if you look at the IMF's projection for growth for India in 2024, that was last year. This was October 2024. They were projecting what growth was going to be in 2025 for India. This is before the elections in the US and everything. The growth was projected to be 6.5% for India this year. This October, the IMF revised up India's growth for 2025 to 6.6%.

But that came in before the second quarter growth numbers came out. So I expect they will move up to 7% the next time they come up with their numbers. So India is actually doing better than was predicted before the crisis. There are important reasons for that. I think the world has shown a lot of resilience, different parts of the world for different reasons. I believe artificial intelligence has been a big offset for tariffs around the world. The spending on it has supported growth everywhere. So I don't think the lesson to take away is that high levels of tariffs are not a problem for the world. They are consequential, and I would say that the next couple of years we will continue to see some of the drag from this geoeconomic environment that we're in.

Depending upon where you're starting. So yes, I would say that the IMF's number was 6.6%. That's what they came out in October. But their forecast for the second quarter fiscal in terms of what the growth would be was much lower than what it turned out at, over 8%. Just doing the math, I would expect that they would go up closer to 7%.

So first thing is we should have a good sense of what the tariff numbers are. So the headline numbers in terms of what the statutory tariff rate in the US is, is 18%. But if you look at the data and if you look at actually tariffs that have been collected and use that to calculate the tariff rate, the tariff rate of the US is closer to 10%. So it's about half of what the headline number is, right? So it's not as bad as it seems. Secondly, there has been much less retaliation than was feared in the past. It was expected that there would be many more countries that would retaliate. Europe did not retaliate. The important exception is China. China is the only country that's really gone toe-to-toe with the US in terms of tariffs. So of the rest of the world, tariff rates average about 4%.

Right. So tariff rates have gone up substantially, but still are not at extremely high levels. I do think that at least from the US perspective, we are past peak tariffs in the US for a couple of reasons. One, and I think the important piece is that 2026 is a year of midterm elections in the US. I don't think there's anybody who wants to have a lot of uncertainty in the run-up to the elections. Tariffs have raised prices in the US. They've pushed up inflation by about 7 percentage points. So that cost of living increase is a problem for affordability. So that also dampens, I think, the incentive to raise tariffs further. And lastly, there are important legal challenges to the tariffs in the US, which I think will also scale it down. So from the US tariff perspective, I suspect we are, if not at past the peak, but definitely close to the peak.

The rest of the world, on the other hand, I do think is grappling with a large amount of imports coming out of China because China has redirected their goods out of the US to other parts of the world. So we could see more tariffs being imposed, for example, on trade with China in the future.

No, India has at this point the highest tariff rate among all of the US's main trading partners. So, and I just don't see how this will stay at this level. I expect that it will go down. It will take negotiations, but yeah, it's already at, I mean, the headline number is 50%, effective is about 38%. That's very high.

I mean, the US is a very important partner for India, and therefore I think it is very important that both countries, both India and the US, work together to come up with a mutually agreeable solution for where they are. I think that's the pragmatic way forward, and I know that there are a lot of discussions happening in the background, and there's always the right time, and things can move very quickly. So that's the only way to move forward, I think, is to continue to build that partnership. On the other hand, India is also going about and building other trade partnerships. I mean, they have the new agreement with the UK, but also working with the European Union. I think this is something that India can continue to push on because we are entering, we are in a world where everybody's looking around for new partners, and India is in a position of strength to be able to be that partner for many more countries in the world.

I think at this moment it probably, for India, this is an easy decision, frankly, because the price of oil is now, I mean, it looks at just very recently it went below $60 a barrel. That price, well, in a sense, it's not a big trade-off between the economic security and the national security aspect. So there's going to be a lot of cheap enough oil in the market. I think India can decide where it wants to buy its oil from. But, you know, there was a time a few years ago when Russia invaded Ukraine and oil prices shot up dramatically, and at that time actually the US encouraged India to continue buying oil from Russia because they didn't want the whole world to be moving away from Russia because that would raise prices everywhere. We're not in that situation now, and oil prices are down $60 a barrel. I think it's a good time to figure out, you know, maybe there are other countries to buy from.

I don't think so. [laughter] I'm basing this entirely from an economist's perspective. I'm just saying that in a sense the trade-off is really not that big for India given where oil prices are globally.

Yeah, just to be clear, I don't think that the US is necessarily going to escalate their tariffs on China. The US depends on China for rare earths, and that is becoming a big important deterrent. I was talking more about other countries like in Europe where this could be a factor. What India needs to do in terms of tapping into the global supply chain is continuing on the path of all the big reforms that it needs for its own internal growth, right? And as was mentioned by several people, including the finance minister, the improvement that we've seen in physical infrastructure and in digital infrastructure in India is super helpful, and that should continue. But that needs to be then complemented with other ongoing reforms. I think one big hurdle for India to be a big industrial power is land acquisition. That remains very complicated. You know, land titling is not clean. It's very hard to acquire land in India.

That is an important constraint on how fast you can build out, and that is, I believe, an important constraint on growth. Now there are ways, there are states that are actually doing innovative things, like Andhra Pradesh, I think, has some very innovative policies in being able to hasten land acquisition, and policies of those kind can be helpful everywhere else. So I think that's one area where this is required. Second, of course, is deregulation. India remains to be a, it's still a tough place to do business. I mean, there's been a, there has been improvement, things have gotten better, but there is still a lot of regulation, a lot of bureaucracy. Corruption is still an issue, a big issue, and so addressing all of that is going to be critical if India has to become a major player on the global stage in global supply chains.

Yeah, I mean, when it comes to labor in India, we've long talked about the demographic dividend. But if you look at India's growth since 1980, you know, 40 years plus, only about 30% of that growth has come from India's labor force. Most of it has come from capital accumulation, productivity growth. So in a sense, India hasn't really had a big demographic dividend. Even though the population is big, the workforce is big, it's still only about 30% of the contribution. And there are two sides of the coin over here. One, of course, is in terms of labor market policies. Thankfully, recently they've gone ahead to implement the labor codes, and that's really good. I mean, raising the number of workers you can have from 100 to 300 before you have to hit the constraints is helpful, though of course if you want to truly be a big player, you're talking more in terms of thousands of workers, not in terms of hundreds, but again, the direction of travel is very good.

And then there's the other side, which is the skilling and the level of human capital that there is for the Indian worker. And that again falls short of what is needed. I mean, there is evidence that if you can increase one more year of formal schooling for a person in India, you end up with their incomes going up by 6 to 7%. So these are very substantial improvements. Both of those are needed. I was recently reading about the model that's there in Gujarat in trying to improve schooling. I think it's called the Education Command and Control System, which is basically tracking teachers and students and also their performance using AI and machine learning to figure out their performance, and that certainly is again one way to be able to raise education levels in India.

Now, I completely agree with the minister on what you said about the fiscal situation in India. The union government is doing a very good job in terms of building credibility on the fiscal front, sticking to their spending targets, making sure the deficits are within what's been projected. So India is gaining in terms of credibility because of what's being done at the union level. Unfortunately, the state governments aren't helping with India's credibility. There are many state governments where you have excessive borrowing that's going on. They're not able to maintain their projected path of spending and revenue. So there is this issue. How does one address it? I mean, the way you address it is by basically incentivizing states that are prudent, that are maintaining good fiscal policies. You incentivize them in terms of how much resources they will get from the union based on your performance. There's not that much of incentivizing at this moment. So I think more that can be done to incentivize the states to maintain fiscal discipline. That's where you're going to play an important role.

I think this is going to be a very important challenge for India for the reason that I also said earlier, which is if you look at the contribution of labor to growth in India, it's only been about 30%. So you need to find new ways to have productive jobs. If India goes from capital-intensive manufacturing to capital-intensive services, then I don't know where the jobs will come from. So that is a tricky one. In terms of the numbers, the estimate is about 26% of India's workforce is exposed to AI. The average for the world is about 40%. So 40% for the world on average, 26% for India. 26% because if you look at where most of India's labor is, 40% of India's labor is still in agriculture. So it's not that exposed to AI, but it's 26%. Now, exposure doesn't mean it's a bad thing. It's about 50/50. About half of that will benefit from AI. The other half will suffer from AI.

There are also estimates that have been made about what the potential impact on productivity growth could be of India AI adoption, and it ranges from like 3% to 3%. So it's a pretty big range, but it can be very substantial too. What will it take, I think, in the case of India, digital public infrastructure, the more build-out, that's going to be absolutely critical, and then human capital scaling, I mean, having the ability to actually use this technology. Also in the case of India, the fact that there are shortages of certain kinds of skills, like in healthcare, it helps. AI will be very helpful in expanding the access to healthcare. Similarly, in terms of education, to raise the quality of education, you could again use AI to be able to improve the, you know, close some of the skill gaps that exist. But this is not going to happen automatically. I think it's going to require actually a pretty thought-through strategy.

I think the demand for just simple people who can code is just not there anymore. It's just you can do it very easily. You can use text-based languages and instructions to generate the code you want to do. So I don't think coding is going to be a big, a big, a big field, and that I worry a little bit about that because there's a large number of engineering schools in India. They basically put out some people who can code, and that's not going to cut it.

AI actually has a bit of an interesting impact on inequality, unlike other kinds of previous technologies where it was absolutely clear that the people who were the most skilled were going to benefit from AI. Now we are seeing that even less skilled people, if you book a call center, for example, you know, you can get a very friendly chatbot to help you, you know, talk to a client or a customer more easily, and so you do see sometimes the lower end of skill also benefiting from it. So it's a bit of a mixed bag, but what is still very much the case is that that rarified 1% at the top in terms of skills will gain a whole lot more than pretty much anyone else.

So this is what I mentioned earlier, which is that in a sense it's not been a labor-based growth story for India, right? It's only been about 30% of India's growth has come from labor, and how does one get to the next higher level? And that's going to require both sides of the equation. One is improving the skills of workers, the level of human capital, and then the other in terms of labor market reforms. So the IMF did this interesting analysis where they said, what if India's labor market flexibility was as good, or rather moved up to the level as, say, Mexico and Brazil, which, you know, are other emerging markets. So it's a comparable group, and the estimate that they put was that could add about 44 million jobs between now and 2030. So it is both a combination of the level of skill, but also the, you know, the ease with which you can hire workers and you're able to grow in size.

So the IMF has a responsibility to help countries that are in an economic crisis. I mean, it is the requirement of the IMF to do that. And countries that are in economic crisis are in a crisis for multiple reasons. It's not just because of macroeconomic policies that go wrong, but there also, there's social conflict. There are conflicts at their borders. That's the candidate country that is coming to the IMF for financial support, right? And so therefore, it is always an important and careful decision that has to be made about can you help the country? Can you truly improve its macroeconomic situation despite everything else that's going on? There's a set of policies extremely well argued through. And by the way, these policies are signed off not by IMF management, but by the members, by its 195 member countries. So there's a world-defined set of policies that are accepted, and you have to implement based on that. So it's a bit of a checklist, and you say if XYZ is met, you have to go ahead and disburse to the country. So I mean, that's all I can say. I mean, those are the criteria that get used.

Yeah. Now, I think I would not claim to be an expert on President Trump's, you know, feelings or views about individual countries. I do think that that is something that probably can change over time, too.