Opening up trade while fixing domestic policy still best option for countries, says 16th FC chairman Arvind Panagariya

India has a much better chance to navigate a more fragmented world, especially if it does not align itself with either the US or the China bloc, IMF Chief Economist Pierre Olivier Gourinchas said at the same event

Global economy still offers the best opportunity, and countries need to open up further to take advantage, said Arvind Panagariya, chairman of the 16th Finance Commission, at the India Policy Forum organised by the National Council of Applied Economic Research on July 2.

“Opening up trade while fixing domestic policy still remains the best hope,” Panagariya highlighted, noting that the goods market was still quite open.

“There may be opportunities for India in this geopolitical fragmentation. But if the world is fragmenting from geopolitical factors, you would benefit more if you opened your trade regime,” said Martin Raiser, South Asia vice president, World Bank.

“If India wants to do China plus one, it should double down on trade and investment reforms,” Raiser added.

Panagariya and Raiser were commenting on a presentation made by IMF Chief Economist Pierre Olivier Gourinchas.

India has a much better chance to navigate a more fragmented world, especially if it does not align itself with either the US or the China bloc, said Gourinchas.

“Non-aligned countries can benefit from this fragmentation. India could benefit, and trade surpluses could increase,” Gourinchas noted.

He also highlighted that the country was placed better to deal with artificial intelligence-related disruptions.

“India is well positioned in terms of AI exposure,” he pointed out.

The IMF chief economist noted that the trade disruptions were similar to the Cold War post the Second World War with the formation of two blocs.

“Odds about (Donald) Trump (becoming president) have increased, which has considerably damaging implications,” said Robert Z Lawrence, faculty chair, The Practice of Trade Policy executive programme, Harvard Kennedy School.

Gourinchas pointed out that trade-distorting measures have nearly tripled to 3,000 in 2023 from 1,000 in 2019.

“Trade between blocs has declined more than the trade within blocs,” Gourinchas noted.

FDI between blocs has declined closer to 55 percent, whereas within blocs, it has declined over 20 percent.

A paper published by the IMF in January 2023 pointed out that the cost to global output from trade fragmentation could range from 0.2 percent to up to 7 percent of GDP.