Trump’s jibe fails to dent India’s growth story

THE recent controversial remark by the US President that India and Russia can 'take their dead economies down together' has created a furore in the country. A question, therefore, needs to be asked: Is there any truth to the US President's remark? In any case, this has brought the issue of economic growth to the fore and we should use this opportunity to assess how we can strengthen our growth prospects.India's real gross domestic product (GDP) is estimated to have grown by 6.5 per cent in 2024-25 and 7.4 per cent in Q4 of 2024-25, which is by far the highest growth rate by any major emerging market economy (EME). India's macroeconomic fundamentals remain strong with inflation under control; a sustainable current account deficit; a moderating fiscal deficit; near all-time-high foreign exchange reserves and a stable exchange rate.The balance sheets of the banking and corporate sectors have never been healthier than they are today. Thus, the country's economy continues to be resilient.The Indian economy also remains the best-performing among all major economies even in this period of heightened global uncertainty.The International Monetary Fund in its July 2025 Update has revised upwards India's real GDP growth for 2025 to 6.4 per cent from 6.2 per cent in April. This compares very favourably with other major EMEs such as China (4.8 per cent), Brazil (2.3 per cent), South Africa (1.0 per cent) and Russia (0.9 per cent).The Indian economy makes a significant contribution to the global economy, with its share in global GDP is projected to rise from 3.5 per cent in 2024 to 4.7 per cent in 2030.We can, therefore, shrug off the criticism by the US President, which perhaps was more out of frustration at not reaching a trade deal with India or some geopolitical reason than about the state of the Indian economy.Even if we can dismiss the remark of the US President, we need to engage in a serious discussion on what the short- and long-term challenges for our economy are that we need to address. In the short run, we should make all efforts to mitigate the impact of the ongoing tariff war and the associated uncertainty.First, India should continue to pursue free trade agreements (FTAs). We need to sign the FTA with the US by securing a fair and mutually beneficial deal.India and the US have close economic ties, which benefit both economies immensely. Indian IT companies and global capability centres contribute significantly to the US economy. According to a study by NASSCOM in 2022, Indian IT firms and their clients generated $396 billion in US sales (output), supported 1.6 million jobs in the US and contributed over $198 billion to the US economy in 2021.Indian pharmaceutical companies are a major source of affordable and quality-assured generic drugs, especially for chronic diseases, thereby providing large cost savings to the US healthcare system. Estimates suggest that in 2022 alone, Indian pharmaceutical companies contributed an estimated $219 billion in savings to the US economy.India also benefits from its close ties with the US through large IT services exports by Indian companies, remittances from the Indian diaspora in the US, portfolio investment and foreign direct investment.Therefore, the FTA with the US should help strengthen the economic ties further and would be a win-win situation for both.Second, India also needs to pursue the FTA with the European Union and become a member of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which excludes both the US and China.In a world where trade multilateralism is almost dead, it is important to pursue bilateral and regional trade arrangements to enhance India's participation in the global supply chain, which is necessary for promoting manufacturing and low-skill jobs.Even without FTAs, it is important to reduce tariffs to global levels to ensure that our industry, which is hampered by excessive protectionism, remains globally competitive.In the long term, our focus should be to further strengthen our growth prospects to ensure faster growth in per capita income and reduce income inequalities. India's per capita income at $2,700 (2024) is one of the lowest in the world. Therefore, India needs to grow at a faster pace than it has so far to improve per capita income.For this, it is important to focus on human development, which has been relatively neglected all along. The government needs to pay much greater attention to education than it has done so far.Quality education to all will go a long way in creating skilled jobs and reducing income inequalities. India's public spending on education at 4.6 per cent of the GDP remains far below the target of 6 per cent, which was set to be achieved more than three decades ago.Likewise, public spending on health at little over 1 per cent of GDP has remained broadly unchanged for more than 30 years. It is nowhere close to the target of 2.5 per cent set in the National Health Policy 2017.Many other economies, including those with similar per capita income, spend much more on health. Out-of-pocket expenditure on health in India, which is one of the highest in the world, forcing people to adopt harmful coping mechanisms such as liquidating productive assets or borrowing, resulting in impoverishment.Thus, the government needs to reset its growth priorities by focussing on human capital, which will help the economy grow faster and reduce income inequalities.In sum, the Indian economy is on a sound footing and, hence, the criticism by Trump should not worry us. However, given the challenges of low per capita income and income inequalities, we need to grow faster by focussing on human development.Janak Raj is an economist and ex-Executive Director, RBI.

Trump’s jibe fails to dent India’s growth story

Janak Raj

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