India is not immune to global economic turbulence, warned Gita Gopinath, Harvard professor and former IMF chief economist, during an interview at the World Economic Forum in Davos.
Speaking to NDTV's Vishnu Som, Gopinath underscored that external shocks, ranging from tariff wars to market corrections, could significantly impact India, despite its strong domestic market.
Gopinath's warning came on the same day that US President Donald Trump stirred controversy at Davos by referring to Greenland as "our territory." While asserting the US wouldn't use force, Trump added a veiled threat: "You can say yes, and we will be very appreciative. Or you can say no, and we will remember."
Highlighting global vulnerabilities, Gopinath said, "We may be in a situation, given how stretched valuations are... that we could end up with triggering a correction of meaningful consequences." She cautioned that the era of central banks and governments consistently bailing out markets may be nearing its end.
Institutions like the IMF and ECB have consistently flagged "stretched" valuations, particularly in US equities, which trade at a sizable premium to global peers. Gopinath warned that if global tensions escalate into tariff wars, the market could see another crash like the one triggered on April 2, a reference to the 5% plunge in the S&P 500 during a short-lived but intense trade scare.
India, she said, has so far managed to divert some exports despite high US tariffs but warned this workaround has limits: "You cannot keep doing that for a very long time." While India's large domestic base offers some cushion, Gopinath stressed the importance of securing new trade deals.
On the long-awaited EU-India trade pact, Gopinath was optimistic. "It would be a very strong signal of economic cooperation, of new alliances," she said.
