India could unlock transformative growth in manufacturing and exports by combining tariff reductions with broader trade agreements that expand market access and ease non-tariff barriers, said Franziska Ohnsorge, World Bank’s chief economist for South Asia, calling for trade reforms coupled with internal measures for bigger gains.
“If this (higher US tariffs) can be the trigger for finalising these trade agreements that have been under negotiation for a long time, it could be transformative, especially for manufacturing,” Ohnsorge said in an interview.
The World Bank on Tuesday raised India’s growth forecast for FY26 to 6.5% from 6.3% but trimmed its FY27 estimate to 6.3% from 6.5%. India’s GDP grew 7.8% in the April–June quarter, the fastest in five quarters, after expanding 6.5% in FY25.
The US recently imposed a 50% tariff on Indian goods, including a 25% penalty for importing Russian oil, among the highest globally alongside Brazil.
Reducing intermediate tariffs early and embedding them in broader trade agreements that expand market access “could really be transformative for the export side,” Ohnsorge noted.
While trade reforms can lift growth, complementary domestic reforms are critical, she asserted.
“It doesn’t have to be labour market reform. It can be housing, transport, digital or skilling reform, anything that makes it easier for pe- ople to get much bigger gains from trade reform.”
Such reforms, she said, could potentially double the benefits of trade liberalisation. “There’s a lot of growth that could be unleashed inside India with domestic policies.”
India is currently pursuing 8–10 trade deals, including one with the European Union. Talks with the US on a bilateral trade agreement are also underway.
She pointed to Mexico and Vietnam as examples of economies integrated into global value chains through trade agreements with partners accounting for about 50% of global GDP.
“If you are in that kind of trade agreement, of course you can have a lot of trade. You’re embedded in supply chains and getting market access,” she said. For India, based on its current trade pacts (excluding the UK deal), the share is just 12%. “If you add the UK, EU, Australia, Canada, and maybe even the US, you come close to something like 50% of global GDP,” she added. “That could be transformative.”
Terming manufacturing India’s “sleeping giant,” Ohnsorge said the sector held vast untapped potential. India’s goods exports rose 0.14% to $437.7 billion in FY25, accounting for 11.2% of GDP.
By contrast, services remains India’s “success story,” she added, with minimal government intervention. Services exports rose 13.6% to $387.5 billion in FY25.
On impact of AI, she said it presented both an opportunity and a challenge. “AI can either make you more productive or take your job.”
Only about 23% of India’s workforce is likely to be affected by AI positively or negatively since a large share is engaged in agriculture and manual labour. Of this, 15% are in roles where AI can enhance productivity, while around 7% are in jobs more likely to be substituted.
“If this (higher US tariffs) can be the trigger for finalising these trade agreements that have been under negotiation for a long time, it could be transformative, especially for manufacturing,” Ohnsorge said in an interview.
The World Bank on Tuesday raised India’s growth forecast for FY26 to 6.5% from 6.3% but trimmed its FY27 estimate to 6.3% from 6.5%. India’s GDP grew 7.8% in the April–June quarter, the fastest in five quarters, after expanding 6.5% in FY25.
The US recently imposed a 50% tariff on Indian goods, including a 25% penalty for importing Russian oil, among the highest globally alongside Brazil.
Reducing intermediate tariffs early and embedding them in broader trade agreements that expand market access “could really be transformative for the export side,” Ohnsorge noted.
While trade reforms can lift growth, complementary domestic reforms are critical, she asserted.
“It doesn’t have to be labour market reform. It can be housing, transport, digital or skilling reform, anything that makes it easier for pe- ople to get much bigger gains from trade reform.”
Such reforms, she said, could potentially double the benefits of trade liberalisation. “There’s a lot of growth that could be unleashed inside India with domestic policies.”
India is currently pursuing 8–10 trade deals, including one with the European Union. Talks with the US on a bilateral trade agreement are also underway.
She pointed to Mexico and Vietnam as examples of economies integrated into global value chains through trade agreements with partners accounting for about 50% of global GDP.
“If you are in that kind of trade agreement, of course you can have a lot of trade. You’re embedded in supply chains and getting market access,” she said. For India, based on its current trade pacts (excluding the UK deal), the share is just 12%. “If you add the UK, EU, Australia, Canada, and maybe even the US, you come close to something like 50% of global GDP,” she added. “That could be transformative.”
Terming manufacturing India’s “sleeping giant,” Ohnsorge said the sector held vast untapped potential. India’s goods exports rose 0.14% to $437.7 billion in FY25, accounting for 11.2% of GDP.
By contrast, services remains India’s “success story,” she added, with minimal government intervention. Services exports rose 13.6% to $387.5 billion in FY25.
On impact of AI, she said it presented both an opportunity and a challenge. “AI can either make you more productive or take your job.”
Only about 23% of India’s workforce is likely to be affected by AI positively or negatively since a large share is engaged in agriculture and manual labour. Of this, 15% are in roles where AI can enhance productivity, while around 7% are in jobs more likely to be substituted.
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