Markets will push the US to act constructively: Nouriel Roubini

ET Bureau

Economist Nouriel Roubini said economic and market pressures would compel Washington to adopta more constructive approach towards New Delhi

"US policymakers need to recognise that maintaining good relations with India, including trade is critical and fundamental," Roubini told ET on the sidelines of the SuperReturn Middle East event. "India is a huge and rising economy and is aligned with many of the objectives of the US and the West...Rationality will prevail."

Calling India a "major success story with the potential to become an even bigger one", the professor emeritus at Stern School of Business, New York University, said the US should consider India a friend and an ally. "The US President has not been very consistent even with friends and allies. Markets will force the US to adopt a more constructive approach, including towards India," he said.

He expects US tariffs to fall further from 9% amid concerns around inflation and affordability. The US tariffs rose sharply from around 3% up to nearly 30% last year under the Trump administration, before retreating to 9% after the US Supreme Court earlier this year scrapped the emergency tariffs.

A bright spot

Roubini, chairman and chief executive of macroeconomic consultancy Roubini Macro Associates, said India was emerging as one of the global economy's bright spots, given its large domestic market and talent pool. However, it will need to grow at close to 9% to generate enough jobs as AI reshapes labour markets.

"India is one of the success stories with solid macroeconomic fundamentals, a reasonable degree of political stability and a commitment to opening up to the world," said Roubini. India's potential economic growth could accelerate above 8% if it continued with reforms and opened up further, he said.

India's economy expanded 7.8% in the first quarter of 2026-27 from a year earlier. The Reserve Bank of India projects GDP to grow 7.1% in fiscal 2027, while the International Monetary Fund forecasts 7% growth for 2026 and 2027.

"But growth of 7% is not enough. India needs to get closer to 9% to ensure that young people can secure good jobs," Roubini said.

In a world where AI and technology are going to displace many jobs across both manual and cognitive occupations, including blue-and white-collar, high population growth would not be sufficient, he said. "With the right policies, India is in a sweet spot," he said.

Friendshoring to benefit India

With a global shift towards nearshoring and friendshoring, India's position could strengthen amid geopolitical disruption, with manufacturers, including mobile phone producers, diversifying away from China, Roubini said.

"Geopolitics benefits India because China is increasingly considered risky. Concerns about offshoring to China are leading to nearshoring and friendshoring," he said.

Manufacturers are likely to increasingly move operations to India and gradually diversify away from China and other markets perceived as geopolitically riskier, he added.

Roubini said India was less exposed to external shocks and global uncertainty given its large domestic market.

On the other hand, he said China's growth was trending downwards because of demographic challenges, excessive leverage, and issues in the real estate sector.