Sustained, moderately high growth and trade deals can supercharge India: World Bank's Franziska Ohnsorge

New Delhi: Trade deals can spark a manufacturing renaissance for India, and a consistent, moderately high annual growth rate of 6%-7.5% over an extended period of time without any macroeconomic instability can transform the country, Franziska Ohnsorge, chief economist, South Asia Region, World Bank, said.

Merchandise and service exports offer India significant investment potential and scope to raise their share in gross domestic product (GDP), driven by trade deals as well as artificial intelligence (AI)-led productivity gains in the service sector, Ohnsorge said at a select press interaction on Saturday on the sidelines of the Kautilya Economic Conclave 2025 organized by the Union finance ministry.

Sustained growth at a respectable rate, as India has managed in the past 25 years, can take the country far over a period of time and pull many people out of poverty, she said.

"That is, a consistent 6-7.5% growth annually for years on end without any major crisis. That is a significant achievement, one that India has actually achieved since year 2000. And you can lift a lot of people out of poverty.” “You can go a long way and attain substantial progress by just growing at a respectable rate for two decades. Transitioning then to a higher growth trajectory is a different matter,” Ohnsorge said, indicating the role that favourable global conditions and an element of luck can play on growth trends.

India's economy grew by 6.5% in fiscal year 2025 (FY25), and expanded at 7.8% in the April-June period of the ongoing fiscal year.

In response to a question about the tariff barriers faced by domestic exporters in India's largest export market, the US, she said that trade deals enhance market access.

“That (the US) is one market. But look at the negotiations that have been ongoing on with the EU (European Union). And look at what just happened with the UK trade agreement. That is perhaps the most ambitious trade agreement in a decade. It went well beyond tariffs and covers services exports and has labour mobility provisions. So, the world is big. There is the EU, there is Australia, there is Canada,” said Ohnsorge.

“Even if one trading partner is becoming less accessible, others may become more accessible with these trade agreements.”

Highlighting the potential for scaling up India’s exports, Ohnsorge said that India’s service exports is a success story, but merchandise exports are underperforming. If India addresses relatively high import tariffs on intermediate goods and builds that into trade deals, domestic manufacturing sector will also get a big boost, she said.

In agriculture, one could think of replacing intermediate goods with labour, but that is not possible in manufacturing, said Ohnsorge.

Manufacturing is really hurt by tariffs on intermediate imports, said Ohnsorge.

“If those can be lowered and ideally, embedded in a broader trade agreement that goes well beyond tariffs, you could get a real manufacturing renaissance in India," Ohnsorge said, adding that exports account for a high share in the GDP in the case of Mexico and Vietnam, indicating their high market access.

“For India it is 12% of GDP, as per 2023 data,” Ohnsorge said, referring to the period before India’s deal with the UK.

Including the gains from India’s trade deal signed with the UK in July, and likely deals with Australia, the EU, Canada, and possibly the US, India’s export share could surge to as high as 50% of GDP, she said.

“This is what could truly trigger a renaissance in manufacturing,” she added.

India is currently negotiating with Australia a full-scale comprehensive economic cooperation agreement and is in talks with the EU, Peru, Chile, Oman, Qatar, New Zealand and the US for trade deals.

In case of Canada, the Indian government has announced setting up a high-level officials' team to start the negotiations.