Davos 2026: Pollution costs India more than tariffs, Gita Gopinath warns

Davos: The impact of pollution on the Indian economy is far more consequential than impact of any tariffs that have been put on India so far, Gita Gopinath professor at Harvard University and former IMF chief economist said at the World Economic Forum on Wednesday, underscoring the significant economic costs of environmental degradation in the country.

"One of the areas I wanted to point out, which we usually don't talk about when we are talking about business development is pollution," Gopinath said, adding that pollution and related health impacts impose a far greater burden on productivity and public finances than trade barriers. Poor air quality leads to higher healthcare costs, lost labor hours, and reduced workforce efficiency, she noted, weighing heavily on long-term economic performance.

While tariffs often dominate policy debates, Gopinath said environmental factors deserve greater attention from policymakers because of their sustained and wide-ranging economic effects. Addressing pollution could deliver substantial economic gains alongside public health benefits, she added.


India has made progress in expanding its economy and improving infrastructure, but pollution remains a persistent challenge, particularly in major urban centers. Economists have long warned that without stronger environmental controls, pollution could undermine growth prospects despite reforms in trade and industry.

Gopinath’s remarks highlight the growing consensus among global economic institutions that environmental risks are increasingly central to macroeconomic stability, especially for fast-growing emerging economies like India.

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The environment also poses risk for any top investor mulling putting-up shop in India. Gopinath urges that "..addressing this issue on a war footing is critical. I mean, this has to be a mission, a top mission for India."

However, speaking on the sidelines of the World Economic Forum in Davos, Gopinath said the country is on track to become the world’s third-largest economy within a few years, likely by 2028, based on current growth projections as compared with Germany and Japan. “It would be very hard to see how India would not get there,” she said, adding that revised GDP calculations could even accelerate that timeline.

But she stressed that India’s true challenge lies not in headline economic rankings, but in raising per capita incomes. While acknowledging substantial reforms - including major investments in physical, digital infrastructure and improvements to the goods and services tax - Gopinath said sustained reform momentum will be needed to achieve the country’s long-term goal of becoming a developed nation by 2047.

India’s macroeconomic stability remains a key strength, she said, citing solid growth and inflation in low single-digit territory. However, she highlighted persistent structural constraints, including land acquisition challenges, weak land titling systems, and slow judicial processes, which continue to weigh on manufacturing and investment.

“'A little bit messy’ is probably an understatement,” she said of India’s land reforms, pointing to states such as Andhra Pradesh that are experimenting with innovative approaches to land conversion and titling.

On labor markets, Gopinath noted that only about 30% of India’s growth since the 1980s has come from labor, reflecting a capital-intensive production structure shaped by regulatory rigidities. While recent labor law reforms are a positive step, she said states must fully implement them and push further to enable firms to scale up and integrate into global supply chains.

Labor market flexibility, judicial reform, and investments in education and skills development are critical to unlocking India’s demographic dividend, she said. “There is a mismatch between the jobs that can be created and the skills of the labor force,” Gopinath added, calling skilling and human capital development “super critical” to sustaining India’s growth trajectory.

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GLOBAL IMPACT OF TARIFFS

Gopinath pointed out that tariffs announced by the United States so far have had a limited global impact because actual tariff rates are significantly lower than headline figures. While statutory rates may be cited at around 24%, effective tariffs are closer to 14% due to exemptions and carve-outs.

However, she said there is no doubt that the era of near-universal free trade has ended. Gopinath argued that countries are increasingly prioritizing resilience over pure efficiency. As a result, governments are looking inward and strengthening domestic capabilities, particularly in strategically important sectors.

She also noted a fragmentation of traditional geopolitical blocs. “There is no one West anymore,” Gopinath said, adding that while there was never a unified “East,” the longstanding alignment between the US and Europe has weakened. While this does not signal a complete breakdown of global cooperation, she said the shift is structural and long-lasting.