Gita Gopinath shares insights on geoeconomics at Times Network’s IEC 2025

At the Times Network’s India Economic Conclave 2025, Gita Gopinath, Professor of Economics at Harvard University and former Deputy Managing Director of the IMF, shared her insights on navigating geoeconomics.

Below is the full text of Gita Gopinath’s address from the conclave:

Thank you, Meher, for having me speak at this conclave. You really picked the biggest issue of today, which is geo economics. To your question of are we in a structural change world? The answer is yes. So we have decisively moved away, especially in the 1990s and around the early 2000s. You moved away from that in the 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 has 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 geo economic environment that we're in.

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 actual tariffs that have been collected and base 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 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 the 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, pushed up inflation by about 0.7 percentage points. So that cost of living increases is a problem for affordability. So that also dampens the incentive to raise tariffs further. And lastly, there were 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 the 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 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 historical number is 50%, the effectiveness is about 38%. That's very high.

There's no if and passing with the US is a very important partner for India. And therefore, I think it is very important that both countries, India and the US work together to come up with a mutually agreeable solution 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 it 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 continues to push on because we are entering a world where everybody's looking around for new partners. Uh and India is in a position of strength to be able to be that partner for many more countries in the world.

Again, at this moment, probably for India, this is an easy decision, frankly, because the price of oil is now, I mean, I'll just very recently, it went below 60 dollars a barrel. At that price, in a sense, it's uh it's not a big trade-off between the economic security and the and the national security aspect. So there's going to be a lot of cheap enough oil in the market. 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 dollars 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. I I I'm basing this entirely from uh from an economist 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 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. Uh 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 it has some very innovative policies in being able to hasten land acquisition and policies of those kinds 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 uh it's still a tough place to do a business. I mean, 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 uh is going to be critical if India has to become a major player on the global stage in global supply chains.

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 and 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 have been two sides of the coin over here. One, of course, is in terms of labor market policies. Thankfully, uh recently they've gone ahead to implement the labor codes. That's really good.

Raising the rate of workers, employees 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 uh 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 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's certainly uh 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 that 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, 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 this? 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 incentive at this moment. So I think more 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. Uh 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% of the world on average, 26% in 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%.

The 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 0.3%, 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, more build out, that's going to be absolutely critical and then human capital, skill. 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, helps.

AI will be very helpful in expanding 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 everybody seems to agree that coding is one area that is uh getting swallowed by AI. 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 coding what to do. So I don't think coding is going to be a big uh a big a big field and that I worry a little bit about that because there's a large number of engineering schools in in India that basically put out some uh people who can code and that's not going to cut it

AI actually has a bit of an interesting impact on 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 work at a call center, for example, 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 very much the case is that that very 5% of the top in terms of skills will gain a whole lot more than pretty much anyone else from AI.

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 uh 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 uh 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, other emerging markets, 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 uh 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 crisis for multiple reasons. It's not just because of macroeconomic policies that go wrong, but it's also their social conflict, 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's defined set of policies that are accepted and you have to base that. So it's a bit of a checklist. You say if XYZ is met, you have to go ahead and disperse to the country. So I mean that's what I can say. I mean those are the criteria that get used.

No, I think I would uh not claim to be an expert on President Trump's, you know, feelings or views about individual countries. I do think that that is uh that's something that probably can change over time too.

You know, we've gotten used to it.

So I mean just firstly we should put things in perspective. H1B visas as a share of the US labor force is tiny. It's a very small number. Now, it's just that 70% of those visas go to Indians. And so that's why the Indians are particularly conscious of what is happening over there. President Trump actually, compared to several of the other people in his party, does believe that the US needs talent from other parts of the world. So there is in fact a push to simply end the H1B visa program and Trump has said no, this is we need it because we need to get highly skilled people from all the parts of the world. But we're just going to put the bar higher. So we're going to require a 100,000 dollar fee to make that happen. I think what we all have to get used to and I think this is another structural shift going forward is that the world is not going to be as attractive a place for immigrants. Just more generally. And by world, I mean it's not just the US. I think it's true in Europe, it's true in Canada, it's true everywhere. UK it is there has been an important sentiment shift everywhere uh in uh you know, the major economies where the you know, attractiveness of immigrants and what they bring to society, I think is somehow raising a lot of a lot of issues. And so we may be past peak immigration too in the world. I do think this is again not just a US phenomenon. I think it's very broadly true. This is one common factor you see across almost all countries is this push back against immigration

Again, I think if India can maintain growth rates of like close to 8% for 20 years, then you're getting much closer to the 2047 goals. But it is not easy to maintain even 8% growth for a 20-year period on a sustained basis. That is going to require sustained reforms on a year on a year on basis. Otherwise it won't happen.

Yeah. So China's growth actually this year is supposed to be 5%, which is very good even though you know that China is about four times the size of India. Uh and also given what happened in terms of tariffs, this is one of those examples of, you know, where everything changed and nothing changed. This is uh you know, they've done well. But that said, there are some deep structural issues that need to be addressed in China.

The property market crisis has gone from bad to worse, which is unfortunate because they've done a lot to try and prevent that from happening, but it's actually getting worse. Similarly, if you just look at consumption spending, that's not holding up well. Consumer sentiment is weak. So if you're looking at medium-term growth for like five years out, we're looking at growth in China which is predicted to be around 3.5% or so between 3.5 and 4%. So it is a weakening growth outlook and you know, it's going to require some real shaking up.

 I actually don't see this as a big trade-off for India. Let me tell you, we're all sitting here. The air quality outside is as it is by any metric that you look at. It shows you look at the impact of what that is doing to the Indian economy in terms of the effect on health. So there's this, you know, very nice study that was done that looked in for a particular year, it was 2019, looked at the effect of air pollution only, air pollution on premature deaths in India. That number is 1.67 million deaths. That's 18%, 18% of the deaths that happened in 2019 were attributable to air pollution. That is every year and that's what and it's gotten worse since 2019. So and then if you look at the effect of this on just morbidity, right? Health, lung cancer, heart disease and so on. And you look at the economic cost in terms of today's dollars, that's about for the Indian economy on an annual basis about 60 billion dollars.

To put that in perspective, the tariffs that India is facing from the US, the effect on the Indian economy is about 1/4 of that, right? And it's going to go away. It's going to go away in a couple of years. But this is not going away. So whatever India needs to do to have cleaner air, it goes along with having renewables, which of course a lot of progress has been made on that front. But if this air quality situation is not addressed on a regular war footing, it's a big knock to India's growth.

I think the risk and the opportunity are the same thing here. I think the opportunity is for India to continue on the path of steadfast structural reforms to then be able to deliver higher standards of living for all Indians, better air, better health, all of that will be important. The risk is if that stalls. The risk is and that is not something that has not happened in the past. It's very common for countries to end up basically without any more reforms. There's reform fatigue sets in. If that happens, then that's a lost opportunity.

Again, as was uh by they also made this point, which is that as India grows in terms of growing at 8%, the macro stability that it demonstrates, all of that gives it a very important seat at the table. And as we know, it's only a matter of time, maybe two or three years before India is the third largest economy in the world. So knowing India is absolutely critical. As you know, India plays a very important role on the global stage. I think it did a phenomenal job when it had the G20 presidency. It really did a very good job in terms of addressing global debt issues, but also the topic of crypto, how to regulate crypto, which continues to be an issue to this day. So India has been able to leave an important stamp. It has strong leadership, it has strong diplomacy, using both of that to continue the conversation to bring together other emerging and developing countries uh to put their uh needs out there. I think India should play an important role.

So obviously the crypto space is evolving over time. You have the Bitcoins of the world and they go up and down in terms of value. The new kid on the block are stable coins, which are basically cryptocurrencies that have stable values. The dollar stable coin is the overwhelming stable coin of what we have here in terms of the stable coin market cap is about 300 million. The vast majority is in dollar stable coins. In this particular case, I unlike Bitcoin where I worry less about loss of monetary sovereignty and other things, I worry more about that when it comes to stable coins because stable coins come closest to what seems like money, though they're not exactly money. They come very close to it. And if you look at the data and you have to do a fair bit of forensics to understand this because it's not easy to simply know where the money is going. Most of the holding of stable coins in dollars as a share of the country's GDP is basically in countries with high inflation.

It's in Latin America and you have where you have the holding of stable coins as a share of uh of their GDP, right? So I I do think all countries and this is going to be true for India too should have a well you know, should think of how they will address concerns about capital control evasion of capital flows that evade the rules and the laws of the country in this environment uh in with in this case of stable coins. So I think this is required.

These are not permanent jobs. The uh in terms of becoming managing director, so you know, practice it's not law, but practice is that the head of IMF has a European passport. So he's from Europe. And the head of the World Bank is American. So I don't have a European passport, so that's not the question. But more importantly, I spent seven years at the IMF, first as chief economist and as it and as first deputy managing director. And before that I was at Harvard. I was a professor at Harvard. And in a sense for me, seven years was a good time. I got to be in the policy space at what was pretty challenging times for the world and of course it still remains challenging, but it was a huge learning experience. But I always expected that I would return to academia because I do love the research side.

So I think this is something everybody agrees on. I've sat in enough uh board discussions at the IMF and with the World Bank where everybody clears their throat and says yes, yes, we should be looking at uh other nationalities for heads of these institutions. You know, there's support from plenty of circles, but uh it takes some doing to make it happen. So it's not going to happen, there's not a set date for it. There is no it's not going to happen organically. It's going to require the other nations of the world to decide that they have a candidate that they would like to put forward and they would support. And that is often not the case.