Trade openness key to improving growth prospects for India and South Asia: Franziska Ohnsorge, World Bank South Asia chief economist

More trade can help India and South Asia grow faster

India needs to further open trade and foreign direct investment in a world increasingly erecting barriers to unlock higher growth rates, Franziska Ohnsorge, World Bank Chief Economist for South Asia, told Moneycontrol on the sidelines of Confederation of Indian Industry's Global Economic Policy Forum 2024.

“This (the trade tensions) is currently a window of opportunity because the world is looking to diversify supply chains. The real question is: Can South Asia take advantage of it?” Ohnsorge said that the region has higher tariffs and more restrictions for Foreign Direct Investment than other emerging market economies.

The South Asia chief economist from the World Bank highlighted that the countries in the region, especially India, needed to take advantage of this low-hanging fruit to unlock productivity, raise employment and growth and increase female labour force participation.

While she noted that India was more diversified in trade than other economies, it needed to work on bringing down trade barriers to integrate more.

India’s growth slipped to 5.4 percent in the second quarter of FY25 compared with 6.7 percent in the previous quarter. Exports, mining, and manufacturing slumps were significant reasons for the slump.

Ohnsorge noted that while South Asian economies were behaving in the exact manner as other emerging markets in terms of agricultural jobs, non-agricultural jobs were not picking up.
“In other emerging markets, in developing economies, non-agricultural jobs are picking up, or employment ratios are picking up, but in South Asia as a whole, much more slowly than elsewhere. So, India and others in the region need both more and better jobs,” she added.

Structural changes

Ohnsorge noted that what the government had instituted till now were supply-side interventions to increase female labour force participation, but what was rather needed was a structural change.

“The system has to change in a way that generates more jobs, and that's where trade comes in,” she added.

A recent paper by Shamika Ravi, a member of the Prime Minister’s Economic Advisory Council, shows that female labour force participation has been on the rise in India. However, it remains below the developed countries.

Ohnsorge noted that emerging markets needed to work consistently on anchoring long-term inflation expectations to get similar results to what developed nations have achieved.