Welcome to serious business on ND TV. 30 minutes of hard business news, One topic, one speaker and a conversation that's relevant to you. I'm man Vien had Hien. 2024 is a landmark year for the world. More voters than ever in history will head to the polls in at least 64 countries, of course, in India, too. Today, on serious business, we are taking stock of the Indian economy and discussing India's economic outlook for 2024. And to do that, we have to consider various global forces at play which will, to varying degrees, have an impact on India's economy. And so it gives me great pleasure to welcome Sajid Cheno, managing director and chief India economist at JP. Morgan Saja. Thank you for your time on ND TV. Good to see you. It's great to be here. Thank you. Bright spot in the world economy, fastest growing major economy. All of these phrases have got reiterated at Davos. Sure, these descriptions of the Indian economy are accurate, but you know they're relative to the rest of the world and the lens that I want you to look at it is a little more inward. What's the lay of the land for the Indian economy? And here I'm asking you to address the good and the worrying. Sure, thank you, man, we So I think the starting point here is, you know, as we enter 2024 India's growth has performed much higher than anyone expected. I think many people started believing the year that growth would be 5.5 or 6%. That's now moved up to seven, possibly higher Now, To be fair, we have to take a global lens to this as well That 2023 was a less threatening year than was presumed. We never had that global recession that people had worried about. In fact, global growth as the year went on got marked up by a full percentage point. And also while that happened, crude prices and global commodity prices came off. And that was to India's advantage because we're a large importer of commodities, so that served as a positive terms of trade impulse. Having said that, there are lots of India specific factors which have contributed to this higher growth, you know, the central government continues its relentless capital expense push and I think one can't give this enough credit. Many of us had pushed for this back in 2020 the centre has really put its head down. And for the third or fourth consecutive year, Capex, uh, you know has been a priority. If this year's budget targets are met and I have no doubt that they want a central government, Capex would have doubled in four years, right? I think that's been a really important part of India's recovery. The positive surprise this year has been that the states are finally joining in as well. So I think this double barrelled infrastructure push has been crucial to the recovery. Now, in addition to that infrastructure push, we've seen the housing market pick up Residential real estate is picking up. These are long cycles. For 10 years it was dormant, and now you've seen a big pick up, at least in some cities, in 2022 and 2023 together. What this has meant is that construction is getting a leg up, but you've seen very strong construction growth, and this is now much above its pre pandemic path. A third factor that has contributed is the health of the banking system. You know, for a decade we used to lament about the twin balance sheet problem, high levels of NPS and high levels of corporate debt. Thankfully, the economy has worked itself through that that if you look at NPS now that they are the lowest in a decade and more generally, financial sector balance sheet, both banks and NBFC are much healthier. We're seeing a big push for growth by the financial sector, and that's showing up in much higher credit growth. So there are multiple factors that have converged here. Construction, you know, the financial sector. One last thing I'll say is everybody is very focused on China, plus one in manufacturing. But the real revelation has been service exports the last three or four years. You know, JP. Morgan, where I work is a great example. We used to have 30,000 people working in JP. Morgan five years ago. It's now 55,000 people. A lot of our global research, legal, accounting, technology, cybersecurity work happens here. So it's an exciting time because many things have come together. Are the areas we have to focus on going forward? Absolutely. I think for starters, we can't get complacent, you know, given where our demography is, given the number of jobs we have to create going forward, we have to aspire for sustained high levels of growth. What are the areas to focus on? In my mind, there are about three first that we want. The public sector has been driving growth. We want at some point now for the private sector to participate more fully, and this would mean broadening and deepening of the private investment cycle and of private consumption. So I think it's important for that transition to happen. Second, you know, blue collar job creation. This is an existential issue for all emerging markets, and I think over the next decade blue collar jobs are going to be key here. There's an important backdrop that is works in India's favour. As China is focusing towards high tech exports, they're vacating a lot of space in labour intensive manufacturing, low scale labour intensive manufacturing, textiles, leather, gems, jewellery, right and as they vacate that space, it's really up to us to grab that space. So we really want labour intensive manufacturing where we can create blue collar jobs and the third area, which is I think more near term is just to avoid, You know, either complacency or too much exuberance in the financial sector. These are typical cycles for 10 years. The financial sector is very risk averse. Now balance sheets are very healthy, so everyone's desperately seeking growth. But we just need to ensure that the exuberance doesn't get too runs too far ahead of the economy. And it's I think what the RBI has been doing is exactly right is just saying everybody cool down, calm down, take a deep breath and just ensure that the exuberance doesn't outrun actual fundamentals on the ground. OK, so I'm going to pick up on a bunch of things that you have mentioned. The first one is very clearly. Data documents it you've reiterated it. The government Capex has really been a powerful propeller of growth in recent years for India. You very clearly also said that private investment private consumption is an area that needs work. So my question is this over reliance on government Capex? Um you know, could that be a story playing out in 2024 2025? Because there isn't enough visible evidence of private Capex, Private consumption, uh, taking charge. You know, Am I surprised by this and not because when you're hit by these very large shocks and the world wars in 2020 with the pandemic, then 2022 with the war, You know, this is exactly what counter cyclical fiscal policy would warrant or mandate or suggest that the private sector tends to get risk of us, right? And when you have these very large shocks, and so it is the government, that's the first mover, and therefore, it was really important for that capital expenditure to happen. Uh uh, in the hope that it crowds in private investment. Now, uh, so so was that. Is it been surprising that this process has been on for two or three years? No, uh, of, uh, of that, you know. But as you rightly said, going forward at some point, that baton will have to pass. Now I'm sure we'll talk about the budget and the fiscal, but at some point, the fiscal has to begin to consolidate. It is already consolidating, but perhaps consolidate faster. This year may well be the start of that process where the focus is on public debt. And so, as the private sector or the public sector gradually withdraws, the baton will have to pass to the private sector. The good news is that again, what I alluded to is that some of the structural embedment to private investment, which was balance sheets, have improved and have those embedment have been alleviated. This seems more cyclical in nature that corporate debt is now down. It's a matter of, you know, having more demand. Visibility utilisation rates have been in the mid seventies, and sometimes those utilisation rates tend to intersect with just global uncertainty. We've been living in incredibly uncertain times the last three years going to be a hard landing, a soft landing. Fed rates are the highest they've been in, you know, 3040 years. So I'm not surprised that entrepreneurs around the world will take a little time. But hopefully this is the year where some of this uncertainty resolves. This is the year utilisation rates begin to continue to creep up. And this is the year that, you know, private investment can, um, you know, can begin to establish itself more deeply and more broadly, but But that is going to be an important marker for India's growth prospects, and we'll talk about demand visibility. But first, fiscal math. India's fiscal math Uh, just take stock of that, Uh, To a layperson like me, it would seem like the space the fiscal space for, you know, many more years of growth through government Capex is limited. Uh, you're exactly right. I mean, there are two ways to look at this, uh, stocks and flows. Uh, the fact is, like the rest of the world when the pandemic happened, India's public debt to GDP S from close to 70% to 90%. Then we had two high years of normal GDP growth because growth rebounded and inflation was high and that brought debt back down to the low eighties. But the real test will come now because when growth is more normal and inflation is more normal, I think what all emerging markets, including India will want to do is to ensure that debt first gets stabilised and then comes down because you want to make space for the next shock. Yeah, you know, India, over the last 3040 years, I think the Achilles heel has always been not making enough fiscal space in the good times so as to respond when you're hit by a shop. But I think the government is very cognizant of that. We've seen the central government's fiscal marksmanship been very good the last few years, but the deficit was brought to down to 6.4. It's now been brought down to 5.9. I think, from a debt sustainability perspective, the focus will now have to be on. How do we reduce these deficits further? The centre has a target where it plans to bring the deficit down to 4.5% of GDP in two years time. So, ideally, you would like to take a big chunk out of that in this budget. And you want, ideally, would like to see the central deficit go from 5.9 to 5.2. The delicate dancing act is going to be even as you're doing deficit consolidation. You don't want to withdraw too much Capex support because that process is a multiyear process. So the balance is gonna be how do you keep Capex strong and bring and undertake the consolidation? And we've seen that happen in last year's budget as well. But Capex went up and the deficit came down, so we need more of that. I would argue that going forward, the consolidation pressure needs to be absorbed. Multiple instruments. It can't be absorbed only by one part of the budget this year. The good news is we're seeing tax points here and direct taxes. Gross tax to GDP at the centre could be close to 11.5 or 11.6% of GDP, much higher than the budget warranty. And I would hope to see again in the years going forward that we see more direct tax reform. We've done corporate taxes, maybe do more personal taxes. We certainly want a broader base. Fewer exceptions, lower rates. You want to take advantage of the LA or Curve when it comes to direct taxation. So you know one kind of one approach in the coming years will can be that, you know, we try and do more direct tax reform. A. We want to do more asset monetization. If you get a global soft landing, equity markets around the world are going to be on fire, and this is the time where you want to monetize public assets to seek most value and you want to continue with, you know, expenditure finding space where you can. I think, apart from Capex, you know there is a dualism in the recovery and it's important that we also ensure that there is welfare support at the bottom of the pyramid. So it's going to be a balancing act. But it's one that the government's pulled off last year. So hopefully all of these instruments can be put to use direct tax to GDP reform, disinvestment, finding some space on expenditure and we can continue to focus on Capex, ensure that there's enough space for welfare spending at the bottom of the pyramid and achieve this consolidation. It's not impossible, but it's going to be a delicate balancing act. OK, very simple question. Demand visibility. You know, that's what the private sector is looking for, and it's got its positive implications when it comes to capacity utilisation, fresh investment, et cetera. Point me towards you know the positives when it comes to private demand, private consumption. What do you see? We clearly seeing that upper end consumption has been very strong, right? And you can see this in sector after sector. I think several equity market analysts call this premium where you've seen upper end consumption be strong. Uh, you What you want is for the consumption recovery to broaden out you want. Uh, but this is a little bit chicken and egg because, uh, you know, lower end consumption will pick up when we can do more blue collar jobs. But then the blue collar jobs are a function of investment, which is a function of demand. And that's why you need the fiscal to kind of break the logjam, that if you can begin to crowd in private investment and you're seeing some of this already, you're seeing some of the cement sector, some in the steel sector. There are some sectors where you are seeing private Capex pick up. So the idea is, if you were to continue with the Capex push, you can crowd in private investment that creates jobs, which then broaden consumption. That would be the typical sequence. Now, it would be good if India can get some help on the external front. And I think this is an area where we need to focus that there are all these seismic global changes happening. Multinational companies are supply chains are getting getting reconfigured. Service exports have become an exciting new avenue for India. I spoke about the fact that China is vacating space on labour intensive manufacturing. So there are all these global opportunities that that that exist and and we really need to seize that. So you need demand to be firing both domestically and to the extent possible externally. OK, you've set me up for a break. At the start of this conversation today, we promised a look at the global forces that also, you know, affect India and very interesting one sergeant that you've already pointed out some more will be addressed when we return from this quick break. Welcome back to serious business on ND TV. We're in conversation today with Sajid Chinoy, managing director and chief India economist at JP. Morgan. Global Pressures, Global opportunities and India. Is it well placed to capitalise on some of them is a thinking adequately hard about some of the options that the world is throwing up. Now I have this tendency, Serge, to describe everything in very simple terms. But, you know, I'd like you to flesh out some phrases that I've heard you use in recent months and the first one of them is de globalisation tendencies. You've written about it. I want you to give us specific examples. Make the link of India in my head. I've made the link between you know, the election year. You know, protectionist tendencies, the same pressure in every country to create jobs, Uh, derisk from countries like China supply chains being reorganised. There are so many of those factors and at some level, you know, they are easily understandable. India has those compulsions as well. But when you use the term Delo tendencies which are the most powerful examples that you can share with us and which of them have an impact on India, this is one area that I worry about from a global perspective. And it's just beyond one year if I think a more structural pivot that the world may be making and I worry about that. Think about where you know the prosperity and the job. Creation of the global growth over the last 30 or 40 years has come from you've seen incredibly, you just take a step back and don't focus on the business cycle. We've seen incredible prosperity around the world. Very high levels of growth, low levels of inflation. Productivity growth over 4050 years has picked up living standards around the world. In many poor countries have picked up. You can see the changes in India just over the last 20 or 25 years and a lot of that to the fact of what we call globalisation, that global trade was surging. And from a very simple minded perspective, this is just higher productivity because of specialisation and trade. You know the theory of comparative advantage. Everybody will do what they're good at, and then we will trade with each other. And what that model of growth did was it meant that countries quickly caught up to the frontier that you had high levels of productivity growth. You know what economists say is the global supply curve moved out. China was seen as being the factory to the world, and you had a lot of disinflation. So you know, when the supply curve moves out, the constraints you face are less. You get higher growth and low inflation. Now I think that model is being challenged not just now. Over the last decade. You know, if you look at the US China tariff wars under Trump, you look at Brexit. All of that pointed to an uneasy phenomenon, which was that even though in the aggregate the global economy had done very well, the benefits of that growth had been shared in a very skewed manner. That the entire blue collar middle class in the US manufacturing base, you know, in the Heartland states got wiped out, and that led to a lot of political disenchantment. And so you had the trump election in 2016. We had Brexit that same year, and unfortunately, what that's done is it's triggered these tendencies of de globalisation that, you know, we want to bring manufacturing back to our own country and we are prepared to aggressively use industrial policies. And we've seen that process accelerate and become steroidal after the pandemic. So and not for a moment saying that companies should not derisk they absolutely should. Multinational companies should derisk. Hopefully India will benefit from that process. A B are there certain you know, areas of national security where countries want to be self sufficient. Absolutely right, whether it's semiconductors, uh, whether whether it's green energy, whether it's defence. But I'm I'm worried about a more secular phenomenon that's taking hold, which is that everybody wants to, uh, you know, bring manufacturing back to their country and produce everything for themselves. And you can see most clearly in the sheer quantum of subsidies that the US is handing out over the last 23 years in the Inflation Reduction Act. In the chips act right in the infrastructure bill, then hundreds of billions of dollars of subsidies. Now, when the centre country does it, it sets about a very large demonstration effect. And we've seen countries in Asia countries in Europe now match that. So the worry is we now have a kind of an industrial policy race to the bottom, and I wonder that, you know, quite apart from this year over the next 10 years, if the world gets de globalised or economically balkanized and the IMF calls it geo economic fragmentation, there will be a heavy price price to pay for growth. There will be a price to pay for inflation because the supply curve moves back up right and and it will be tough now, from India's perspective, why does this matter? Because exports are key to our growth. No country the size of India has grown at 78 9% which we need to for the next 10 years extend 20 years, given our demography without strong export growth. So it's one thing when the world is globalising and if we can just plug into the global export and grow by no means am I an export pessimist. I think this is entirely possible, but it means we have to become very efficient, right on goods, on services to increase our market share. It's a huge export market out there and drive those exports. You know, I'm mindful of the limited time we have left. I did want you to reflect a little bit on the geopolitical tension. We saw what Ukraine and the consequences on commodity prices on global economic. You know, pain points were today middle of January 2024 quick, uh, sort of risk assessment by you. Well, the world is just a dangerous place to be in these days. We've seen one thing after the other. Not a year has gone by without some geopolitical or economic shock or conflict and I think the lesson for India is that we have to self insure and I think you know where India gets very high marks and this is not sometimes fully appreciated. It's just on macroeconomic stability and the institutional changes we have made over the last 1012 years on macro stability, whether it's inflation targeting and bring inflation down, whether it's an accumulating, a large quantum of fex reserves reserves used to be about 300 billion. They are now above 600,000,000,700 billion. So I think the lesson for India is that this is going to be a volatile global environment. We can take nothing for granted and therefore, preserving and protecting macroeconomic stability is the foundation to sustain growth. And I think that's the lesson we learned from the Taper tantrum in 2013. Those are the changes we've been making and I would say if anything, we need to double down on that right, create and create buffers in the good times, create fiscal buffers, create monetary buffers, create foreign exchange buffers, so when you have buffers, you can respond to shocks without the economy being unduly disrupted. So the budget ahead of an election so limited in scope and nature. But expectations there? Sajid, As I said, I think our expectation would be that the government would very much be on its fiscal consolidation road map. Um, I won't be surprised. In fact, it would be, you know, I'd expect that the deficit will go down from 59, possibly all the way to 5.2 so that half the half the target is met this year. I also think there's a very predictable, uh, rhythm and rhyme to recent budgets where there's been on on revenues conservatism. So I don't think we'll see. We'll see conservative revenues. I think the issue will be how do we get this 0.5 0.7% of consolidation while still continuing with, uh, the the Capex push while still protecting the bottom of the pyramid? And I think there is a way to do it and and the way we discuss. So I think it's going to be a balancing act here of trying to get the consolidation over time stabilising debt but still keeping some support on for the economy in terms of public investment. Till there is more evidence that the private sector is picking up the baton. Sajid, I'm going to leave it at that. But, you know, thank you always for the clarity you bring to these conversations. For lay viewers, it's invaluable to hear, uh, what many would consider complex economic matters deconstructed in simple terms. And that's the objective of serious business. Thank you, Sajid. My pleasure.
