- 9 minutes ago
In an exclusive interaction with India Today at Davos, Harvard Professor and former IMF Deputy Managing Director Gita Gopinath said that 2026 will be a year of high levels of uncertainty and high levels of volatility.
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00:00Please welcome the Chairman of the Board of Peace, the President of the United States of America, Donald J. Trump.
00:11Board for Peace, Inc. at Davos.
00:20Peace plan or power move.
00:30War looms over Davos talks.
00:38Zelensky blasts European Union.
00:46Zelensky accuses EU of lacking political will.
00:50Many meetings have taken place but still Europe hasn't reached even the point what's missing time or political will.
00:58What is the Trumpian world order?
01:08While geopolitics has dominated the discourse in particular because of what President Trump is doing or perhaps won't do,
01:19the impact of that is clearly being felt on geo-economics as well.
01:23And the Trumpian world order has caused considerable disruption and a lack of certainty as to what lies ahead.
01:33To try and make sense of that as to what lies ahead for the economic order, I'm joined by a very special guest,
01:40Professor Geeta Gopinath, Professor of Economics now at Harvard University, former Deputy Managing Director at IMF.
01:46Always good to have you, Geeta, on the show.
01:48Thank you very much.
01:49Likewise.
01:51We're speaking at a time of great uncertainty.
01:55And it seems to be sooner or later affecting economies across the world.
02:00Even as we speak, the rupee has gone to its lowest against the dollar.
02:05We had a thousand point plus drop in the markets yesterday.
02:07Are you getting a sense that 2026 is going to be a year of uncertainty when it comes to economies across the world, including India?
02:17It is going to be high levels of uncertainty and it's going to be high levels of volatility.
02:22So we will see markets drop.
02:24We will see them come back up.
02:25We will see currencies move probably more than what we saw in 2025.
02:29Now, I was of the view that we were past peak tariffs in 2025 coming into 2026 because, one, there's a Supreme Court decision that has to come out.
02:41And there were the midterm elections where, frankly, tariffs are raising inflation in the U.S.
02:46and it's leading to an affordability problem.
02:49And that is consequential for elections.
02:51But the year has started out in a perplexing way, with the whole Greenland piece and a rupture of relations between the U.S. and the European Union,
03:01which was not something that was on the cards last year.
03:04Because the IMF, for example, has projected for India itself, what, 7.3% for 2025-26% and perhaps slowing down a bit into 26-27%, 6.4%, 6.3%.
03:16Do any of those projections hold in this Trumpian world order?
03:20Should we be looking at them in the first instance?
03:22Again, it is a good, useful indicator.
03:26I have to say that 2025 played out about what was projected for the world.
03:33You know, it was, I think they predicted 3.2 and it ended up 3.3, slightly better.
03:38But the ballpark was really good.
03:41So, it is a useful number to keep in mind.
03:43But that said, we are certainly, you know, playing the roulette roulette quite a bit these days.
03:49And hoping for the global economy to all hang together.
03:52Because you wrote an interesting article recently in the Financial Times.
03:56You argue that 2025 created an illusion of stability with global growth holding up despite tariffs, policy, chaos and rising uncertainty.
04:05Do you seem to believe, when you say it's created an illusion of stability, do you believe that illusion will hold or sooner or later, ruptures will be seen in economies across the world?
04:18Well, I think one of two things are likely.
04:20One is, at the minimum, I expect that there will be a slow, you know, hit to living standards over time.
04:30Because structural changes of the kind that we're seeing, you don't see showing up immediately in GDP numbers.
04:36Because it weakens the economic potential slowly and then it adds up over time.
04:40That's why I get the example of Brexit in that article.
04:43Which is in the two years after Brexit, investment in the UK went up.
04:46And everybody said, oh, well, this is much to do about nothing.
04:49But actually, that was not the case.
04:51In fact, investment started slowing and really slowed relative to what it would have been in the absence of Brexit.
04:57Also, the other thing I want to keep in mind is that while tariffs were a headwind, you had a good tailwind that came from AI.
05:07And that played a very important role.
05:09You know, the investment boom in AI, the stock market driven wealth increases in AI.
05:13All of those helped growth.
05:15The fiscal stimulus, the fiscal spending that happened in China, Germany, some in the U.S., more happening this year in the U.S.
05:22All of that is offsetting it.
05:24So, you know, I'd like to push back on this basic sense that somehow tariffs haven't done much.
05:28They've actually played out the way you would expect, keeping in mind that the average tariff rate is lower than what the sticker shock numbers are.
05:36So, you're saying these are times to be cautious, in a sense, because there's a belief that India, for example,
05:42and I go back to India again, that India, in a way, has shown itself to be a bit of an outlier,
05:47still the fastest growing large economy in the world,
05:50and that, therefore, with our domestic demand being what it is, we will do reasonably well, even with these global headwinds.
05:57Do you go along with that, or is there a sense, as many businessmen privately tell me,
06:02privately, not publicly, privately tell me, these are uncertain times and they are very worried?
06:07So, in terms of estimates of what the tariffs will do for India is about it will knock off something about 0.7 percentage points from growth over a two-year period.
06:18I think nobody in India should think that, well, you know, what you've seen is a lot of exports from India that were previously going to the U.S.
06:25were redirected to other markets, including the Middle East, other countries.
06:30Similarly, China redirected a bunch of flows that were trade that was going to the U.S. to other countries in Asia, in Europe,
06:38and some of it, of course, has found a way back into the U.S., which is what happens.
06:42This is not a sustainable situation.
06:45I don't think there is, oh, we will all very simply easily pivot away from the U.S. and sell to other markets,
06:50and therefore, we don't need to worry about the consequences.
06:53The U.S. is a large market.
06:55It does matter if you have very high levels of tariffs with the U.S.
06:59Whether, you know, how this gets solved is going to come down to the two heads of state,
07:04even President Trump and Prime Minister Modi, a discussion and a decision at that level.
07:08But you've also, and you alluded to it briefly, that there are signs that the U.S. economy also could well be slowing down.
07:14Jobs could, you know, jobs could get scarce in the one side.
07:18Inflation, which you mentioned, could become a serious worry.
07:22Given all of that, does that add another factor in a way?
07:27Will there be a restraint at all, in your view, on what Donald Trump does or not?
07:31Can we separate the geopolitics from the geoeconomics at all anymore?
07:35So the restraints that we have seen have come when there have been very big, dramatic decisions,
07:42like April 2nd, Liberation Day tariffs.
07:45Then we saw financial markets respond very strongly.
07:48Between April 2nd and April 5th, when they went and put a pause on those tariffs,
07:52really something could have broken in the markets.
07:55So markets are not a good disciplining device for slow erosion.
08:00They're good for when there are big shifts that you see.
08:04And indeed, if there is a huge decoupling of many more countries with the U.S.
08:10or they attempt to decouple, which I don't think is easy to do,
08:13but they attempt to decouple with the U.S., that will have big financial market implications.
08:18A couple of other points that you've been making in recent comments and articles.
08:21One is your warning on AI, that it's not about its transformative potential,
08:27but you suggest that profitability and a risk of a dot-com style correction.
08:31Now, everyone here in Davos is talking about what the AI boom is doing.
08:35You seem to again be giving a slightly cautionary tale there.
08:38I am very positive on the technology itself.
08:44And so I expect this technology will raise productivity growth.
08:48It will raise growth in general.
08:51It's the most transformative technological change of our lifetimes.
08:55It may be more than our lifetimes, too.
08:57That is separate from valuations of companies,
09:01both those listed on the market and those not listed on the market yet,
09:04like OpenAI, Ananthropic, and others.
09:06Because, you know, it's hard for me to see how each of these companies
09:11can make the kinds of profits that are needed
09:14to justify the level of investment spending that they're doing,
09:18the level of valuations that they have.
09:21It's, I mean, they haven't presented,
09:22most of them don't really have a big profit-making model.
09:25There is so much competition.
09:27I mean, every day there's a new LLM that's coming and leapfropping the other one,
09:31not just from within the U.S., but from international sources.
09:34I don't know about you.
09:34I'm going across LLMs.
09:37I go across many different versions of those.
09:39So it seems like a fairly competitive space at this time.
09:42So that's just my point.
09:44My point is that it's technology that's real.
09:47It's not a fake technology.
09:48I think it will have a big impact.
09:50But at the same time, it strikes me that these valuations
09:53are somewhat more fragile.
09:55On China, you argue that the continued reliance on export-led growth
09:59is untenable in a way,
10:01and that prioritizing technology investment over social safety net risk,
10:07deepening structural imbalances.
10:09I mean, are we seeing China?
10:10There are those who argue that what Trump is doing
10:12is actually not making the U.S. great again,
10:14but making China great again.
10:16That in a way, this is China's moment as a result
10:18because of the disruption being created,
10:20even as we speak, between the U.S. and Europe.
10:22Do you go along with that,
10:23or do you believe that China itself will also have to reboot?
10:26I think both are true, which is that China needs to reboot.
10:31Again, China was one of the countries that in 2025
10:33redirected its trade away from the U.S. to Europe and the rest of Asia.
10:39That is not going to hold in the long run
10:41because Europe is going to put tariffs on China,
10:44and they will be justified in doing that by WTO rules,
10:47the anti-dumping tariffs that you can put.
10:49So we will see that play out.
10:51China cannot rely on export-driven growth.
10:53It needs to rely on domestic consumption-driven growth.
10:57Unfortunately, at least by going by their 15th five-year plan and so on,
11:01I don't see a big necessary shift that should be happening.
11:05The other piece is also true,
11:06which is the Trump actions and policies and announcements
11:12are helping China.
11:14You saw Canadian Prime Minister Makani travel to Beijing,
11:18which is something that the Canadian Prime Minister has not done in a while,
11:21to have a trade deal with China.
11:24Let's turn fully to India at the moment.
11:27When you were in India not too long ago,
11:30you said that India hasn't had a big demographic dividend.
11:35Even though the population is big, the workforce is big,
11:38Labour is contributing only about 30% to growth.
11:42Are we saying, therefore, that this is India's opportunity,
11:46but you need to have faster pace of reform?
11:49The Prime Minister says,
11:50we're on a reform express.
11:53Do you see that reform express,
11:54or do we need to do much more?
11:56I see a lot of important reforms.
11:59I think it's absolutely special what's happening,
12:02both in terms of physical infrastructure and roads,
12:06all of that,
12:06and also digital infrastructure.
12:08Those are very big.
12:09What was done in terms of implementing the Labour law,
12:12which requires states to agree to that too,
12:15I think that's a good push.
12:17Though I don't know whether that's strong enough
12:20to get the kind of labour market flexibility you need
12:23to get a stronger action from labour, right?
12:25So we like to talk about the demographic dividend,
12:28but India's growth has been quite capital intensive
12:30because of all the restrictions on using labour
12:32and all the problems that exist with that.
12:35Simultaneously, the skilling, human capital,
12:38those are not going to pay off instantly.
12:40It's going to take time.
12:42But that improving, raising that level of human capital
12:45will be important to make labour play a bigger part.
12:49So risks and opportunities.
12:50If I were to ask you two risks and two opportunities
12:52that you see India having at the moment
12:54in this unsettled world.
12:56I think in terms of risks, frankly, near-term,
12:59external, which is coming from the geopolitics,
13:02and I would say weather and climate.
13:04Those shocks matter.
13:05It makes a lot of difference how good or bad
13:07the monsoon is in India even now for growth
13:10because rural demand still depends quite critically on that.
13:14So I think those are important risks.
13:16In terms of opportunities, it's just reforms.
13:19Keeping on the path of reforms.
13:21Continuing to show that India is a good place to do business.
13:25Making it easier to acquire land, transfer land titles.
13:28Having clean land titles.
13:30Judicial reforms, it's a big area that's been stuck for a long time.
13:34Those would help.
13:35Yeah, I had a business leader come on the show and say
13:39it's not about the ease of doing business
13:41but the speed of doing business that India needs.
13:45Very interestingly, the IMF,
13:46of which you were a part till not too long ago,
13:49has given India a C grade for its national accounts data.
13:52That created a bit of a stir.
13:54Whether India is using outdated base years,
13:57methodological weaknesses,
13:59discrepancies between GDP estimates,
14:01where do you stand?
14:02When you look at those India numbers, 6%, 7%,
14:05do you go by them or do you believe that
14:07they need to be further decoded in a way?
14:10So when I was chief economist at the IMF,
14:12we used to ask ourselves this question all the time.
14:15And the truth is,
14:16for pretty much most emerging and developing countries of the world,
14:20they would get close to a C grade
14:21on their national account statistics.
14:24Because they don't have very good producer price indices.
14:28They don't do the right kind of double deflation
14:29that needs to be done and so on.
14:31So, you know, when you try to look at other kinds of high-frequency data
14:36and we didn't see any smoking gun evidence
14:38that there was something particularly bad about India's GDP numbers
14:42versus any other countries, right?
14:44It is tough.
14:45It's complicated.
14:45Why give it a C grade then?
14:47You see, the moment the IMF gave it a C grade,
14:50there are now questions being raised,
14:52and they've been raised even before that,
14:53but when the IMF does it,
14:55then it gets additional ammunition
14:57that the data that is being thrown by the government lacks transparency
15:01and therefore should we go by the headline GDP numbers
15:04or actually try and break it down into specific sectors?
15:07So the grades are an absolute measure,
15:10not a relative measure.
15:11So my previous point was saying
15:13that most emerging markets find themselves in that bracket
15:17because they don't have the national statistics being done
15:21the way it can be done.
15:23That requires investment,
15:25and actually the IMF is working together
15:28with the Indian Statistics Office
15:30to improve on this kind of data collection,
15:33and there's an important round that's being done right now
15:36in terms of rebasing,
15:37which will help improve the quality of the statistics.
15:39Because, again, one of the concerns is
15:42how do you get private investment back on track in India?
15:45If India has got to go to the next level,
15:47despite all the incentives the government has given,
15:50private investment has been sluggish.
15:51It's been largely state-driven capital investment.
15:55Do you believe that's where the ease of doing business,
15:57of ensuring that there's a growing business confidence
16:00needs to be restored,
16:02also a climate free of fear,
16:04if I may call it that,
16:05that businessmen need to believe
16:06that they will not be unfairly penalized
16:10for actions they take?
16:12I do believe that the complications
16:15in terms of being able to do business,
16:17all of the areas where I said reforms were needed,
16:20including on land,
16:22are holding back private investment.
16:25And, indeed, you want to be in a predictable environment
16:27when it comes to regulations,
16:28when it comes to government policies,
16:30and sometimes, you know,
16:33that has not been as predictable as it should be.
16:36So, global growth projected at 3.2% for the year that was?
16:41The year that was?
16:42The year that was is 3.2.
16:44Many believe it's going to be 2.3 for the year that goes ahead.
16:473.3 for the year.
16:48Do you believe that 2.6-2.7 will maintain 3.3%
16:54or do you see a further slowing down?
16:57Given what we know,
16:59I would say 3.3 is possible
17:01because for a lot of economies of the world,
17:04they're going to benefit from the rate-cutting cycle,
17:06including in India,
17:08where interest rates have come down.
17:09There is fiscal stimulus in several countries that's coming in,
17:13including in the U.S., Germany, China.
17:17All of those work in favor of being able to maintain growth,
17:22including in terms of the AI spending space.
17:26But, you know, the risks are what we might see here from the speech.
17:32Very soon that could happen in about a half an hour from now,
17:35and whether we have another big eruption of tariff and trade wars
17:39across the major nations of the world,
17:41whether there's a trigger of inflation,
17:43because the risk, I don't think,
17:44that's being priced into markets right now
17:46is that inflation could be higher in the U.S.
17:49than what's being expected,
17:51in which case the Fed would have to raise interest rates
17:53and nobody's really expecting that.
17:55One of the speeches that's being celebrated here in Davos
17:58is that of the Canadian Prime Minister,
18:00who seems to suggest that there's an opportunity here
18:03for the middle powers to assert themselves,
18:05to assert and focus on a rules-based world order,
18:08assert their sovereignty.
18:10Do you believe there's a model there for countries like India?
18:12Should we stand up in a way to America
18:15when they, we believe, unfairly impose tariffs on us,
18:19saying don't purchase Russian oil?
18:21Do you believe that countries need to, in a way,
18:24push back every time America imposes higher tariffs?
18:28I believe that the middle powers are absolutely critical
18:33to holding up a rules-based order.
18:35They were critical to holding up the order that existed for 80 years.
18:39And why?
18:40Because it's totally in their interest, right?
18:43For an economy like Canada,
18:45it needs to grow by exporting
18:46and having economic relations with other countries.
18:49You're a small country,
18:51you cannot be entirely domestically dependent.
18:54Growth has come through exports,
18:56and that has to be the challenge,
18:57which is why they've been so good
18:59about trying to enforce a rules-based order.
19:01I agree completely that you go with the coalition of the willing.
19:05And you see more and more of that.
19:07The European Union went and signed a trade deal
19:09with South America, the Mercosur deal,
19:11which was in play for multiple years
19:14and wasn't being signed.
19:15They're working on a trade deal with India.
19:17Which could be announced as early as next week.
19:19Exactly.
19:19Mark Carney was in Canada.
19:21The Prime Minister of Canada hasn't gone to Beijing in a long time.
19:28So new alliances, however tentative, are being formed.
19:33And I think it's a sign of saying that it's a coalition of the willing.
19:36Who are the ones who want to keep continuing
19:38having predictability in the international order?
19:41So if you had one piece of advice for policymakers in India,
19:44particularly ahead of a union budget
19:45that comes in a fortnight, this time on a Sunday,
19:48what would that one piece of advice be?
19:50What would you say needs to be done
19:52in this unsettled, multipolar, multi-aligned world
19:56that will give a sense of confidence
19:58that 2026 will be a year where India is on the right path?
20:05Keeping the budget in mind,
20:07I would say that what India needs to continue delivering on,
20:10and it has done well over the last couple of years,
20:12is macroeconomic stability.
20:15Will that hold in this uncertain world?
20:16It can, given India's structure of this economy,
20:22and thankfully because of the whole shift
20:24towards an inflation targeting regime,
20:26which has helped keep inflation expectations
20:29more anchored than it used to be,
20:31so that whenever the rupee depreciates,
20:34you're not seeing an immediate pass-through into inflation.
20:36All of that is good policy frameworks
20:40that have helped keep India's inflation low,
20:42somewhat insulated from outside developments.
20:45Similarly, on the fiscal front,
20:48maintaining fiscal discipline,
20:51which is happening at the center level,
20:52not so much of the states,
20:54which is a bit of a problem.
20:55Again, if you can keep that going,
20:57because there will be another crisis
20:59that's guaranteed,
21:00regardless of whether it's geopolitics or not,
21:03and being able to then support your economies,
21:05you need to have the buffers for it.
21:06Very interesting that you mentioned the states,
21:09because many believe that reforms have to come in the state,
21:11fiscal prudence tough for many states,
21:13and you've come out as a strong votary,
21:15I believe, of one nation, one pole.
21:17You actually went before,
21:18you gave a written submission to a parliament committee
21:21where you said India needs one nation, one pole,
21:24because perhaps that that's one reason for fiscal profligacy,
21:28all this freebie culture that we are seeing around us.
21:31I was invited by the parliamentary committee
21:34to share my views on the economic consequences
21:37of one nation, one election,
21:38not getting into the constitutional aspects
21:41or the political aspects.
21:42And yes, I think the evidence,
21:44both from studies inside India,
21:46but international evidence,
21:48all point to how costly it is
21:51in terms of the impact on GDP,
21:52of having this high level of uncertainty,
21:55these constant elections,
21:56this constant desire to give short-term freebies,
21:59as you would call it, I guess,
22:00as opposed to investing in investment.
22:02What would you call it?
22:02I mean, you know, there is a big debate,
22:05Professor Gopinath, in India,
22:07of the difference between freebies and welfare measures.
22:11Absolutely.
22:11No, we should be careful about that.
22:13I do think there are important cash transfers
22:16of a certain kind that are absolutely valuable
22:20and have been shown to be effective.
22:23I am in support of it.
22:24But what we're seeing in India right now
22:27is every state government,
22:28there's a race to the water.
22:29And there's more and more of the state's budget
22:33being allocated to these transfers.
22:35There's literally nothing to do for development,
22:37ultimately, which is in form of investment.
22:39So again, support,
22:41I do support certain kinds of cash transfers
22:45that have happened,
22:47but I feel it is on a bit of an unsustainable path.
22:50It's interesting because while only today
22:53the Oxfam inequality report has come out here in Davos,
22:57and not for the first time,
22:58it suggests global inequalities are growing.
23:01Is that something?
23:02There is a belief that we're here surrounded by the elites,
23:08the political and business elites of the world,
23:10but people at the bottom are still struggling.
23:13There are still people recovering from COVID shocks, for example.
23:18Should we, therefore, be a little more tempered at times
23:21in the way we respond to some of these headline numbers
23:25that are thrown at us?
23:26You mean in terms of the level of inequality?
23:28In terms of the level of inequality,
23:30in terms of the fact that while the headline numbers look good,
23:34there are still genuine concerns at the bottom of the pyramid.
23:37Absolutely. I think we all have to be concerned
23:40about whether there's just the headline GDP growth number
23:44is improving livelihoods across the spectrum
23:49and not just at the very top.
23:51What we do also see sometimes is that it does improve everybody,
23:54but at different rates,
23:55and that obviously raises inequality,
23:58and that's a challenge that's going to, frankly,
24:00only going to get worse with AI.
24:01My final question to you.
24:03I asked you one piece of advice for the government of India.
24:06What would be your one piece of advice
24:08for the Trump administration?
24:10What would you tell Donald Trump needs to be done
24:13to make the world a slightly more settled place in 2026?
24:17Well, I think, firstly, I would just say that
24:19from an America-first perspective,
24:24maintaining its relationships with its allies
24:26is absolutely critical.
24:28Including India.
24:30Including India.
24:31From a purely, even if you said I was thinking
24:33only about the economic benefit to America from it,
24:35that is the best part to take.
24:38So, in a way, you're saying that you're virtually urging
24:43President Trump to make a differentiation
24:44between friends and allies on one side
24:47and so-called enemies and adversaries on the other.
24:49I'm just saying that, for example,
24:52the biggest, largest trading partner, economic partner
24:55in terms of region for the U.S.
24:56is the European Union.
24:57So, anything that's going to cause a rupture
25:00in that relationship is going to have
25:03a negative consequence for America.
25:05The second thing is, all the evidence we've seen
25:08on who's borne the cost of the tariffs
25:10in terms of who's paid for all of these tariffs,
25:13it's been American importers.
25:15Ninety percent of the cost of the tariff
25:17was borne by American importers.
25:19It was not borne by the exporting country.
25:21It was borne by American importers.
25:22Some of that, the firms have passed on to consumers,
25:25but to an important extent, they've absorbed it.
25:27Geeta, if there were those listening to you in India,
25:31should they see, therefore, listening to you,
25:332026 as a year where they've got to constantly be
25:37on the watch, looking at the headlines,
25:39what comes on truth social?
25:41Or will we be, you believe, in a better place
25:43if we come back here to Davos a year from now?
25:46Will Indians breathe better a year from now?
25:50And I'm not just talking about the air quality,
25:52but generally, looking at their economic numbers,
25:55as I said, a lot of market turbulence
25:56is giving a sense of unsettled times.
26:00Is there a reassuring edge in 2026,
26:03or as your article said, which I said at the outset,
26:06only an illusion of stability?
26:08The fact that we're living in incredibly uncertain times
26:12means that I really don't have an answer to that question
26:14about where we will be next year.
26:17I think what the lessons we've learned are,
26:19one is, you know, don't take every announcement
26:23as consequential, because sometimes announcements are made
26:27and they get unwound, so, you know, take a bit of a breather.
26:30That's one thing.
26:31But at the same time, be ready for, you know, surprises.
26:35So if you're an investor, diversify.
26:38If you're a company, make sure your boundaries
26:39are strong enough to bear any kind of a big turn in events.
26:43And if you're just about average citizens,
26:47worried about what the future holds,
26:50we'll just press the pause button in a way
26:52and wait to see what Donald Trump does next.
26:55But I appreciate you joining us, Geeta Gopinath,
26:58and giving us a broad overview of what lies ahead
27:02in these uncertain times.
27:03Thank you so much.
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