India may outpace all emerging markets, says Milken Institute economist

William Lee, Chief Economist and Executive Director at The Milken Institute, says global investors are increasingly viewing India not just as another emerging market, but as a possible frontrunner among them. He points to India’s strategic role and expanding international ties as key factors behind its potential to outpace its peers.Speaking about global capital flows, Lee said India’s diversified trade relationships with countries like Russia and China position it as a key player. “India is such an important producer and such an important alternative to China,” he said. He also noted that the US is looking to strengthen ties with India. “The Trump administration and certainly Vice President Vance have made it very clear that the United States wants to treat India in a very special way.”

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Lee contrasted India’s outlook with that of other emerging economies. Referring to the “Lucas paradox,” he explained why capital tends to move toward advanced economies, where returns are higher due to better innovation and productivity.
He also discussed how different countries have approached trade tariff negotiations with the US. He noted that allies such as the UK and Japan, which invest and produce within the US, have generally been welcomed and seen steady, if sometimes slow, progress in talks. In contrast, competitors like China have preferred to manufacture abroad and export to the US, accepting the tariff costs. Even then, the tariffs imposed, such as the 10% general tariff and specific fentanyl-related tariffs, have remained relatively limited.Also Read | Tariff rollback buoys US outlook, S&P Global rules out recession

Lee also commented on the European Union’s approach, calling its initial proposal of zero tariffs unrealistic, as tariffs are already minimal due to past trade agreements. The real challenge with the EU, he said, lies in non-tariff barriers—complex legal and bureaucratic rules that make market access difficult.

According to Lee, the EU has not kept pace with innovation and lacks a strong tech sector, making it reluctant to adapt its regulatory environment to support the kind of high-tech investments that are key to future economic growth. This, he suggested, will make negotiations with the EU particularly tough going forward.

For the full interview, watch the accompanying video

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