India needs reforms and strong AI push to attract capital: Gita Gopinath

Former IMF chief economist Gita Gopinath told CNBC-TV18 that India’s economic strategy should prioritize structural reforms and a stronger artificial intelligence narrative to draw in foreign capital. While a 2% current account deficit is manageable, the real issue is declining capital inflows through portfolio investments and foreign direct investment, she said. Gopinath dismissed concerns over global fragmentation and tariffs, noting that 75% of world trade still operates under WTO rules. However, she warned that global capital is becoming more selective, making it harder for India to finance its deficit. Policy action should focus on improving investment appeal by reviving private corporate investment and continuing reforms, she argued. India’s AI potential remains underutilized, according to Gopinath, despite its skilled workforce and tech-driven economy. Investors need a clearer AI-led growth story, though she acknowledged AI could disrupt parts of India’s IT services industry. She cited the Philippines as an example where AI adoption in call centers reduced costs and expanded demand, suggesting transitions may not always harm jobs or business activity. Tighter immigration policies in other economies could also create outsourcing opportunities for India in high-value services. Gopinath praised India’s recent macroeconomic management, particularly its control over inflation and fiscal discipline, as factors that maintain its attractiveness as an investment destination. To capitalize on the next phase of global industrialization, India must simplify business operations through deregulation and clearer manufacturing rules. Gopinath stressed that easing regulatory burdens would position India to benefit from geopolitical shifts and economic fragmentation. Despite challenges, India’s strong fundamentals—including fiscal responsibility and tech capabilities—remain key strengths. Gopinath urged policymakers to act decisively to address capital flow weaknesses and solidify India’s role in the global economy.