September 4, 2024 • 23 mins
India's economy is the darling of emerging markets, with a burgeoning middle class, a rising population and rapid growth set to outperform all large peers this year. But recent data suggest cracks are forming, with less government spending and a slowdown in factory output.
Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics and a long-time critic of India's growth story, joins hosts John Lee of Bloomberg Intelligence and Katia Dmitrieva of Bloomberg News to explain why he believes investors are underestimating the slowdown to come.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
You're listening to Asia Centric from Bloomberg Intelligence, the podcast
that pulls back the curtain on global business so you
can invest better across the Asia Pacific rim. I'm John
Lee in Hong Kong.
Speaker 2 (00:14):
And I'm Katehmitriyeva with Bloomberg News, also in Hong Kong.
India has been a bright spot globally this year as
the fastest growing large economy in the world, but second
quarter data last week showed there are some cracks emerging.
Speaker 1 (00:30):
The economy was broadly expected to slow later this year,
and there are signs that it's already beginning as consumers
and government spending pullback. While some economists were surprised by
the lower than expected growth, at least one analyst has
been bearish on the India story for a few years.
Speaker 2 (00:48):
Yes. Joining us this week is Miguel Chanko, Chief Emerging
Asia Economist at Pantheon Macroeconomics. Welcome Miguel, Thanks.
Speaker 3 (00:57):
Guys, thanks for having Megail.
Speaker 2 (01:00):
You've been more critical than peers on India's economy for
a few years now. Your outlook on GDP is the
lowest among economists in our survey. Why is that? What
leads you to that view.
Speaker 3 (01:12):
I think one of the main reasons is sort of
an overestimation of how fast India is really growing. So
if you go back to the last FISCO year, for example,
so India supposedly grew by eight point something percent, right
if I were to ask you, so for example, I'm
the questionnaire here in you two or the guests, if
I were to ask you, how much of that eight
percent actually came from private consumption? In you main growth engine?
(01:35):
What percentage of proportion will you put to that eight percent?
Speaker 1 (01:38):
At over half.
Speaker 3 (01:41):
Less than thirty percent? Okay, So over half of what
contributed to India's supposedly strong eight percent growth rate last
year came from a component in GDP called statistical discrepancies.
So that's essentially the difference between the GDP by expenditure
approach versus the GDP by industry calculation. So on the
expenditure side, this unaccounted residual accounted for fifty two percent
(02:05):
of growth last year. For me, looking at the numbers,
that's not something tangible I can hang on to India's
growth story. You know, I'm trying to forecast different avenues
of growth consumption, government spending, investment, exports, and import forecasting
statistical discopmancies is not is a false errand and something
that's not really reflective of real economic activity on the ground.
(02:29):
So this huge boost from this sort of statistical noise
essentially flattered much of growth story last risk of year,
and it masked a lot of the weakness underneath, one
of them being private consumption, which grew about four percent
less BISK of year. No one wants to talk about this,
but four percent private suffering growth in India is the
weakest it's been in a decade plus if we sort
(02:51):
of exclude the COVID year. So you know, the slowdown
in India that we're seeing now is really because this boost,
this lift and flattery from statistical discrepancies is now starting
to come out of the headline GDP growth numbers, and
that's sort of revealing an underlying weakness.
Speaker 1 (03:08):
Mcguirl, Could you flesh out more of this statistical discrepancy?
Like what is it? Can you possibly explain it in
layman terms?
Speaker 3 (03:17):
Yeah, I mean I wish I could, but officially it's
like I said, it's a difference between if you measured
GDP by expenditure, so that's GDP you know, looking at
components like private consumption, investment, government spending. That's one measure
of GDP. Right, The measure of GDP is GDP by industry,
So if you look at agriculture, manufacturing services, that's so
(03:37):
that's the output side. So in India is some a
quirky national account system. There is normally a small difference
between the two. Normally they match, but in the last
fiscal year there was quite a big difference. And this
difference is represented as statistical discrepancies in the expenditure approach,
and this accounted for, like I said, as fifty two
(03:58):
percent of the growth UH in the last VESCO year,
which again, like I said, it's nothing tangible that we
can hold on too. So if you were, you know,
banking on eight percent growth when fifty percent of that
was driven by this noise in the GDP numbers, then yes,
call me skeptical, call me bearersh I'm just looking at
what I can actually hang my hat on, which is,
you know, the concrete aspects of GDP by expenditure, consumption, investment,
(04:23):
and a lot of this were weak last VESCAL year
and are still somewhat relatively subbuted this fistical year at
least in Q one.
Speaker 2 (04:29):
Has that been always the case where there's sort of
the statistical discrepancies coming in, or was it just the
case that last year was just the biggest we've seen.
Speaker 3 (04:41):
It's one of the biggest sort of discrepancies that I've seen.
At least if you go back forty years before COVID,
this component has gone down to share a GDP, which
is a good thing because you know, measuring economic activity
has become a bit more accurate over the course of
history of a course of that time. But since COVID,
there's been like an increase in this component's impact on GDP,
(05:03):
at least headline GP since twenty twenty. So we're seeing
this somewhat worrying trend. Maybe there's changes in the structure
of being this economy that are not being captured or
what have you. But yeah, at least in terms of
the growth story, last year's statistical discrepancy contribution was one
of the highest I've seen in many years.
Speaker 2 (05:24):
Does the gross value add get rid of that? I
know there's two readings. India is an interesting economy. We
don't just have GDP, we also have GVA. Does that
get rid of some of that noise because economists do
typically see the GVA as a better reading because it
strips out the effects of transfer payments for taxes and subsidies,
(05:48):
and that was actually above forecasts for Q two for example.
Speaker 3 (05:52):
Yeah, it does no wig, but even within that measure
that the transfer and subsidies bits contributed quite significantly last
year's growth story. Again, what does that mean for economic activity? Minimal?
So if you look at what's tangible we can actually
forecast and compare against monthly high frequency numbers. It was
(06:14):
tangible that for me has been disappointing about INDUS growth stories.
Speaker 2 (06:17):
Up.
Speaker 3 (06:17):
Yes I've been very snoy but because really I've just
tried to focus on what actually concrete that's happening in
the economy based on India's national accounts, I'm not trying
to These numbers are there for everyone to see. And
it's quite funny like sort of maybe six or nine
months ago when when this whole issue is that this
while discrepancies became something that even the Chief Economic Advisor
(06:40):
of India had to address at one point because it
was so egregious that lift that that of the headline
that he had to come out saying this is just
sort of you know how India's GP growth headline is calculated,
and it's a component that meaner birds and ebbs and flow,
so there is a recognition that it's imperfect. But yeah,
obviously the mainstream story is still how India is one
(07:03):
of the main performers in the world, and that sort
of seems to grab the most media attentionet and rightly so.
But for me who has to look into the detail
detail has been worrying in that respect.
Speaker 1 (07:16):
Asia Centric is produced by Bloomberg Intelligence, where more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
two hundred market industries, currencies, commodities and industries, as well
as over two thousand equities and credits. If you like
(07:36):
what you hear, don't forget to subscribe and chair. A
lot of people who look at India are used to
this eight percent growth. Do you think it's been overstated
and what's the real underlying growth in your view?
Speaker 3 (07:50):
I think underlying growth over the last eighteen months or
so it's been probably around six percent, and we're starting
to see someone that convergence now right with that's left
from systems coming out of the picture. Like I said,
private consumption in the last fiscally was four percent, which
is one of the weakest out turns annual alternasi've seen
in years, stripping out the COVID hits. So underlying momentum
(08:13):
is far below the sort of seven to eight percent
rates we've seen before the most recent GTP numbers came
out because the components of GDP that are like said,
tangible have been a lot weaker than the headline suggests.
Speaker 2 (08:26):
Can we walk through those components, Like when you're looking
at the accounts for India, if we're looking at consumer spending,
a business investment FDI, what are you seeing in those sectors?
Speaker 3 (08:41):
I think certainly one of the bright spots over the
last few years or so has been investment. You know,
there's been a real strong momentum in that since COVID,
and even though there's been somewhat of a moderation over
the last few quarters, investment still is the main outperformer.
Looking at the domestic picture, obviously government spending entered somewhat
of a lull because the election, and like I said,
(09:02):
prodic consumption has performed historically weak. That aside, though the
more recent print of seven percent was quite respectable, and
that sort of matches with some of the consumer services
that we're seeing in the RPI, where spending intentions are
starting to take back up again again. If you were
sort of rank where much of the real growth and
(09:24):
momentum has been coming from in India, domestically, at least,
i'd say investment has been the star performer, followed by
in close second and third sort of disappointing government spending
and private consumption numbers. In terms of the external side,
exports have had a fairly good run since since COVID,
and that's true for a lot of emerging markets in Asia,
(09:47):
maybe not so much China, but yeah, exports have also
been quite punchy, if somewhat rocky over the that speak horders,
but still you know, sort of setting record highs even
after adjusting for seasonal noise. So exports has in quite
a strong component of the Indian growth story. And if
you delve more deeply into that as well, Indian exports
of services have really boomed since COVID, and it's probably
(10:10):
one sort of underreported aspect of the numbers we tend
to as as economists as reporters focus on what's you know,
reported on a regular basis, and that's mostly sometimes merchandise
trade numbers. But Indian services exports have really grown substantially
over the last few years and are now starting to
compete with merchandise exports in terms of size, which is
(10:31):
great because that's a fast growing sector. You know, in
the IT and BPO side, that can really help not
just with things like the root pea stability, but also
in general trans of econome activity. It's an industry for
the future. Sure what is included in.
Speaker 2 (10:45):
That you said it and what other industries are leading
within that? With services exports.
Speaker 3 (10:50):
VPO, so business process outsourcing say IT services and BPO
services are typically what account for most of indist service exports.
Similar sort of with the Philippines in that space where
IT services and BPO services because of the English language
skills that sort of trently globally from both Indian and
Philippines that they've been sort of the main players in
(11:12):
Asia in this space.
Speaker 1 (11:13):
Is that what Infosys does Companies like.
Speaker 3 (11:15):
That, Yeah, essentially, but are far more diversified than that
for sure, But yeah, that's one of their business areas
is that.
Speaker 2 (11:22):
Potentially threatened by artificial intelligence? Are we seeing any potential
risk there, like this one bright spot or one of
the bright spots in the economy. Is there a risk of,
for example, these call centers no longer requiring people being
taken over by bots or chats. What are your thoughts.
Speaker 3 (11:41):
I'm no expert on AI, but I could definitely see
that happening, especially at the early stage of any consumer
facing interaction, right where you kind of filter out what's
urgent and what can be resolved by simple queries. I
suspect that we could see some replacement there, especially with
smaller simple customers service questions. But yeah, we've get to
(12:02):
see it, at least we get to see it in
the numbers in terms of service exports. But yeah, sure,
sort of three five years down the line, I wouldn't
be surprised if there's some job lost there because of AI.
Speaker 1 (12:12):
Do you expect GDP growth to slow in the coming
quarters ahead? Especially you sort of mentioned the consumer demand,
how it's waning in factories are slowing. What are the
signs right now in the data and the real economy.
Speaker 3 (12:27):
Yeah, I definitely expect to see GDP growth that continue slowing.
We have forecasts of around the high six percent over
the next few quarters and sort of turning down to
the low six early next year and high fives late
twenty twenty five. So yes, essentially I expect consumer demander
main fairly sluggish. Yes, we had a good growth print
for the most recent report, but consumers are still very
(12:50):
much under pressure in the economy because I feel look
at the state of their household balance sheets is still
very much under pressure and much of the minimum moment
we've seen in consumption has been driven by debts, which
I don't think is sustainable. There was a huge increase
in households borrowing sort of during the post COVID reopening period,
and we're now starting to see this rollover quite sharply investment. Yes, again,
(13:11):
as I mentioned previously, it has been one of the
strong points of the India's economy, but I don't really
expect us to continue, especially in an environment where monetary
policy is likely to remain quite tight. So we've sort
of started to see now the in terms of corporate borrowing,
it hasn't been as strong as as consumer debt, and
I expect some of the momentum that's left in corporate
borrowing to start coming down as well as as the
(13:32):
RBI's industry has from twenty two to twenty twenty three
start to filter through more to the real economy. So yes,
in terms of private domestic land, which is what you
know been broken down to that. It's that's consumption and investment,
the main, real, big parts of Indias economy. I expect
these two main areas to cool over the next few years.
(13:52):
I'm not expecting a crash. Don't get me wrong, right,
I am bearish on India, but it's not like I'm
expecting it to be a doomsday scenario. We're in a
cyclical slowdown and technically these two things will get affected
by type Monte policy type fiscal policy or Titanic fiscal policy,
and there's no escaping that.
Speaker 2 (14:10):
I'm curious how much pushback do you get from clients
or internally on this view.
Speaker 3 (14:17):
Quite a bit, because no one wants to mess with
India as the drawling of the em side, right, and
there's a lot of money now the stark market has
gone gangbusters, and obviously I'm up against that narrative. A
lot of people tend to lose if I'm right, you know,
(14:37):
so I don't mind it that. I don't mind that argument. Normally,
all I have to do is point them to the
actual statistics. And like I said, fifty two percent of
growth last FASCO year was from patistical disturpancies. If you
want to bank on that, that's up to you.
Speaker 1 (14:51):
I don't, yeah, because like, if India grows at the
low six percent level, look, it's still okay compared to
any other country. But there's such high exp for India.
Speaker 3 (15:02):
Yes they are, And I'm still really bullish long term
structurally about Indian growth story. So like I said, typically,
yes I am on downbeach side, but structurally, India has
a lot going for it as compared to most em countries.
You know, it's it's demographic dividend story is still very
much alive and kicking. There's so much potential for labor
to move. So forget you know, the increase in the
(15:24):
workforce over the next few years. The workforce now, and
there's so much untaped potential there because a lot of
them are still engaged in agriculture based on the best estimates,
a lot of that can still move to manufacturing services
where you know, higher productive areas I'm still very bullish
about the structural story of India being a democracy more
stable long term. Yes, it's MESSI but it's more stable
(15:45):
long term. And you know, high saving, straight high investment
rates historically is still very much a factor now that's
going for it. So yeah, yes, I am bullish long term.
Structurally the story is still very solid. I'm not denying that.
But tyclically, I think people are sort of underestimating the
scope of the sharpness of technical slow down over these
(16:05):
next few years.
Speaker 2 (16:08):
What does that mean more broadly for competition with China?
For example, We've seen this narrative play out. China's economy
is structurally slowing, I think, faster than a lot of
economists had expected. We're not seeing any signs of increased
fiscal spending to boost that or change that picture. And
(16:30):
India is also now slowing as well. Does this sort
of narrow the gap maybe a little bit between those
two countries, Yeah.
Speaker 3 (16:38):
A little bit, but you kind of have a squint
to see it. I guess the difference is in scale, right,
So China is a seventeen point something jillion dollar economy,
India is three point five at least last year, and
a seventeen point five trillion dollar economy growing at five
percent versus a three point five trillion dollar economy at
(17:00):
seven percent, there's still no match to that. So even
even the Chinese headline growth is lowered, I looked at
the numbers on this yesterday. Roughly speaking, in real terms,
China's growth is producing a new Thailand and Philippines every year.
In real terms, India's growth Indians growth, Yes, it's at
a higher seven percent, save a seven eight percent, but
(17:20):
from a much lower base of a three point five
trillion to ole economy isn't even producing a whole Vietnam.
So if you look at that in those terms of
real you know, dollar output in fishing and justine terms,
how much these two economists are growing, all Chinese is
adding to the world economy four times more than what
India is just because of scale. So yes, there is
(17:42):
some ketchup there, but again, like I said, you have
to squint to see it, and it'll probably be retired
by then. When when when in India actually does ketchup?
Because it's going to take a long time and the
scale difference is just so vast that yes, there's ketchup,
But it's it's minimal.
Speaker 1 (17:58):
Go just to further discuss this point in the relationship
with China, a lot of people talk about China plus
one and how India is a big beneficiary, and we've
seen companies like Apple slow down their production in China
and produce more in India. Are we starting to see
these come through in the numbers like the economic GDP numbers.
Speaker 3 (18:19):
It's hard to say, because I mean, yes, yes, I'm
aware of that trend, and it does benefit India sectorally
at some level. But if you look at manufacturing as
a share of GDP and yeah, it's been fairly constant
around seventeen percent over the last few years. So if
I was to see a material boost in that story
of you know, China plus one benefiting the likes of India,
(18:40):
then I I'd really want to see shares of manufacturing,
shares of export merchandise export grow as a percentage of
the economy relative to where they were before. But I mean,
in this is just one of the main beneficiaries of
this sort of diversification away from China. Most of this
is still largely benefiting countries in Asian so you know,
Vietnams for example, prime beneficiary of the Chinnel plus one story.
(19:04):
I'd say what's sort of underappreciated on the India side
is that there are a lot of reasons why companies
are hesitating to invest more in India in this space.
So the labor law still remain very strict. As I
mentioned previously, a lot of the workforce is still tied
up in agriculture and a lot of that constraint is
policy based, right. So for example, India has a very
(19:26):
well known minimum support system for agricultural prices which basically
guarantee farmers you know who plant rice and wheat and
what have you, guaranteed income un their produce. Why would
someone who's forming, who has this risable for lack of
a better term, take the risk of moving into a
different sector if they have a guaranteed income, because the
government in India really supports the agricultural sector to that degree. So, yes,
(19:51):
there is potential for India to be a bigger player
in global trade and manufacturing because of the Chinnel plus
one story, but there are a lot of policy reasons
why India probably won't read the benefit as fast as
say others like Vietnam or in Southeast Asia.
Speaker 2 (20:06):
I want to ask about the implications for macro policy
of slower economy, especially after the second quarter data missed
even the central bank estimates. Do you see the RBI
moving faster as a result of that? What are your
expectations for when they'll start cutting rates?
Speaker 3 (20:29):
I mean, i'd like to think so else my forecasts
are wrong. So we were sort of above consensus in
their respect that we expect fifty basis points of cuts
from DARBA this year, whereas consensus at the moment last
time I checked at least was twenty five bas points,
so's not too far. But we're expecting the arbited to
cut much sooner, so from the October meeting. And yes,
i'd like to think that because Q two from the
(20:52):
physically your perspective, Q one missed the RBI's seven point
one or seven point two forecasts, that they'll start looking
more into supporting growth. But from what I read about
what the governor said a few days ago, they already
have a ready mid excuse for y Q one missed, right,
so they're blaming the election for it. It sounds like
there's still no real appetite in the RBI to eat
(21:13):
monetary policy anytime soon. But I think essentially the RBA
has been behind the curve in terms of easing because
we've had core inflation now that that's been historically low
in India for a number of months, and that's really
what no RB should be focusing on that because that's
where the headline wage will eventually converge and follow going forward.
So yes, I'd like to think that we'll see some
(21:35):
easing in the immediate future in terms of the RIIS policy,
But it sounds like, at least from the most recent
rhetoric from the governor, that they've got ready mid excuse
why not? Why why do stand pat at least in
the next meeting?
Speaker 2 (21:50):
Why didn't inflation take hold in India as much as
in other countries, even neighboring countries.
Speaker 3 (21:57):
Well, much of why India sort of shielded from twenty
twenty three is because there's been an implicit fix on
prices in India. So a lot of the all retail
side to pump prices and stuff is still very much
managed by huge state owned companies. And yes, India the
government itself won't say that, you know, we've held prices
(22:17):
pretty much frozen since the invasion of Ukraine two years ago.
But that's basically what's happening, what's been happening. So India
never really felt this huge jump in energy prices the
same way a lot of economies in the EM space did.
So that's one big difference. Secondly, India has also been
one of the main beneficiaries quote unquote to say of
(22:38):
the scarcity and resource So India blocked wheat if you
go back two years ago, India blocked wheat exports to
help the in domestic in fission situation. That at the
expense of inflation elsewhere. Of course, same thing with rice
last year. You know, India has been a bit more
protectionist on the agri side, which has helped to manage
the domestic mastecture. But like I said, at the expense
(22:59):
of you know, higher inflation elsewhere where, other countries' injuries
and our net reed borders of these commodities.
Speaker 2 (23:06):
That could be a whole other conversation fiscal policy, protectionist
policy versus monetary policy, and controlling inflation.
Speaker 1 (23:13):
Absolutely, it's been an educational discussion on India the way
it accounts for its GDP and potential cyclical slowdown going forward.
Thanks Miguel for coming on the show.
Speaker 3 (23:27):
Thank you very much guys for having me. It's been
a pleasure.
Speaker 1 (23:30):
I'm John Lee in Hong Kong.
Speaker 2 (23:31):
I'm Katadmitriyeva, also in Hong Kong.
Speaker 1 (23:34):
This podcast was produced by Clara Chen and you've been
listening to the Asia Centric podcast
You're listening to Asia Centric from Bloomberg Intelligence, the podcast
that pulls back the curtain on global business so you
can invest better across the Asia Pacific rim. I'm John
Lee in Hong Kong.
Speaker 2 (00:14):
And I'm Katehmitriyeva with Bloomberg News, also in Hong Kong.
India has been a bright spot globally this year as
the fastest growing large economy in the world, but second
quarter data last week showed there are some cracks emerging.
Speaker 1 (00:30):
The economy was broadly expected to slow later this year,
and there are signs that it's already beginning as consumers
and government spending pullback. While some economists were surprised by
the lower than expected growth, at least one analyst has
been bearish on the India story for a few years.
Speaker 2 (00:48):
Yes. Joining us this week is Miguel Chanko, Chief Emerging
Asia Economist at Pantheon Macroeconomics. Welcome Miguel, Thanks.
Speaker 3 (00:57):
Guys, thanks for having Megail.
Speaker 2 (01:00):
You've been more critical than peers on India's economy for
a few years now. Your outlook on GDP is the
lowest among economists in our survey. Why is that? What
leads you to that view.
Speaker 3 (01:12):
I think one of the main reasons is sort of
an overestimation of how fast India is really growing. So
if you go back to the last FISCO year, for example,
so India supposedly grew by eight point something percent, right
if I were to ask you, so for example, I'm
the questionnaire here in you two or the guests, if
I were to ask you, how much of that eight
percent actually came from private consumption? In you main growth engine?
(01:35):
What percentage of proportion will you put to that eight percent?
Speaker 1 (01:38):
At over half.
Speaker 3 (01:41):
Less than thirty percent? Okay, So over half of what
contributed to India's supposedly strong eight percent growth rate last
year came from a component in GDP called statistical discrepancies.
So that's essentially the difference between the GDP by expenditure
approach versus the GDP by industry calculation. So on the
expenditure side, this unaccounted residual accounted for fifty two percent
(02:05):
of growth last year. For me, looking at the numbers,
that's not something tangible I can hang on to India's
growth story. You know, I'm trying to forecast different avenues
of growth consumption, government spending, investment, exports, and import forecasting
statistical discopmancies is not is a false errand and something
that's not really reflective of real economic activity on the ground.
(02:29):
So this huge boost from this sort of statistical noise
essentially flattered much of growth story last risk of year,
and it masked a lot of the weakness underneath, one
of them being private consumption, which grew about four percent
less BISK of year. No one wants to talk about this,
but four percent private suffering growth in India is the
weakest it's been in a decade plus if we sort
(02:51):
of exclude the COVID year. So you know, the slowdown
in India that we're seeing now is really because this boost,
this lift and flattery from statistical discrepancies is now starting
to come out of the headline GDP growth numbers, and
that's sort of revealing an underlying weakness.
Speaker 1 (03:08):
Mcguirl, Could you flesh out more of this statistical discrepancy?
Like what is it? Can you possibly explain it in
layman terms?
Speaker 3 (03:17):
Yeah, I mean I wish I could, but officially it's
like I said, it's a difference between if you measured
GDP by expenditure, so that's GDP you know, looking at
components like private consumption, investment, government spending. That's one measure
of GDP. Right, The measure of GDP is GDP by industry,
So if you look at agriculture, manufacturing services, that's so
(03:37):
that's the output side. So in India is some a
quirky national account system. There is normally a small difference
between the two. Normally they match, but in the last
fiscal year there was quite a big difference. And this
difference is represented as statistical discrepancies in the expenditure approach,
and this accounted for, like I said, as fifty two
(03:58):
percent of the growth UH in the last VESCO year,
which again, like I said, it's nothing tangible that we
can hold on too. So if you were, you know,
banking on eight percent growth when fifty percent of that
was driven by this noise in the GDP numbers, then yes,
call me skeptical, call me bearersh I'm just looking at
what I can actually hang my hat on, which is,
you know, the concrete aspects of GDP by expenditure, consumption, investment,
(04:23):
and a lot of this were weak last VESCAL year
and are still somewhat relatively subbuted this fistical year at
least in Q one.
Speaker 2 (04:29):
Has that been always the case where there's sort of
the statistical discrepancies coming in, or was it just the
case that last year was just the biggest we've seen.
Speaker 3 (04:41):
It's one of the biggest sort of discrepancies that I've seen.
At least if you go back forty years before COVID,
this component has gone down to share a GDP, which
is a good thing because you know, measuring economic activity
has become a bit more accurate over the course of
history of a course of that time. But since COVID,
there's been like an increase in this component's impact on GDP,
(05:03):
at least headline GP since twenty twenty. So we're seeing
this somewhat worrying trend. Maybe there's changes in the structure
of being this economy that are not being captured or
what have you. But yeah, at least in terms of
the growth story, last year's statistical discrepancy contribution was one
of the highest I've seen in many years.
Speaker 2 (05:24):
Does the gross value add get rid of that? I
know there's two readings. India is an interesting economy. We
don't just have GDP, we also have GVA. Does that
get rid of some of that noise because economists do
typically see the GVA as a better reading because it
strips out the effects of transfer payments for taxes and subsidies,
(05:48):
and that was actually above forecasts for Q two for example.
Speaker 3 (05:52):
Yeah, it does no wig, but even within that measure
that the transfer and subsidies bits contributed quite significantly last
year's growth story. Again, what does that mean for economic activity? Minimal?
So if you look at what's tangible we can actually
forecast and compare against monthly high frequency numbers. It was
(06:14):
tangible that for me has been disappointing about INDUS growth stories.
Speaker 2 (06:17):
Up.
Speaker 3 (06:17):
Yes I've been very snoy but because really I've just
tried to focus on what actually concrete that's happening in
the economy based on India's national accounts, I'm not trying
to These numbers are there for everyone to see. And
it's quite funny like sort of maybe six or nine
months ago when when this whole issue is that this
while discrepancies became something that even the Chief Economic Advisor
(06:40):
of India had to address at one point because it
was so egregious that lift that that of the headline
that he had to come out saying this is just
sort of you know how India's GP growth headline is calculated,
and it's a component that meaner birds and ebbs and flow,
so there is a recognition that it's imperfect. But yeah,
obviously the mainstream story is still how India is one
(07:03):
of the main performers in the world, and that sort
of seems to grab the most media attentionet and rightly so.
But for me who has to look into the detail
detail has been worrying in that respect.
Speaker 1 (07:16):
Asia Centric is produced by Bloomberg Intelligence, where more than
five hundred experienced analysts and strategists work around the clock
to bring you timely, world class research. Our coverage spans
two hundred market industries, currencies, commodities and industries, as well
as over two thousand equities and credits. If you like
(07:36):
what you hear, don't forget to subscribe and chair. A
lot of people who look at India are used to
this eight percent growth. Do you think it's been overstated
and what's the real underlying growth in your view?
Speaker 3 (07:50):
I think underlying growth over the last eighteen months or
so it's been probably around six percent, and we're starting
to see someone that convergence now right with that's left
from systems coming out of the picture. Like I said,
private consumption in the last fiscally was four percent, which
is one of the weakest out turns annual alternasi've seen
in years, stripping out the COVID hits. So underlying momentum
(08:13):
is far below the sort of seven to eight percent
rates we've seen before the most recent GTP numbers came
out because the components of GDP that are like said,
tangible have been a lot weaker than the headline suggests.
Speaker 2 (08:26):
Can we walk through those components, Like when you're looking
at the accounts for India, if we're looking at consumer spending,
a business investment FDI, what are you seeing in those sectors?
Speaker 3 (08:41):
I think certainly one of the bright spots over the
last few years or so has been investment. You know,
there's been a real strong momentum in that since COVID,
and even though there's been somewhat of a moderation over
the last few quarters, investment still is the main outperformer.
Looking at the domestic picture, obviously government spending entered somewhat
of a lull because the election, and like I said,
(09:02):
prodic consumption has performed historically weak. That aside, though the
more recent print of seven percent was quite respectable, and
that sort of matches with some of the consumer services
that we're seeing in the RPI, where spending intentions are
starting to take back up again again. If you were
sort of rank where much of the real growth and
(09:24):
momentum has been coming from in India, domestically, at least,
i'd say investment has been the star performer, followed by
in close second and third sort of disappointing government spending
and private consumption numbers. In terms of the external side,
exports have had a fairly good run since since COVID,
and that's true for a lot of emerging markets in Asia,
(09:47):
maybe not so much China, but yeah, exports have also
been quite punchy, if somewhat rocky over the that speak horders,
but still you know, sort of setting record highs even
after adjusting for seasonal noise. So exports has in quite
a strong component of the Indian growth story. And if
you delve more deeply into that as well, Indian exports
of services have really boomed since COVID, and it's probably
(10:10):
one sort of underreported aspect of the numbers we tend
to as as economists as reporters focus on what's you know,
reported on a regular basis, and that's mostly sometimes merchandise
trade numbers. But Indian services exports have really grown substantially
over the last few years and are now starting to
compete with merchandise exports in terms of size, which is
(10:31):
great because that's a fast growing sector. You know, in
the IT and BPO side, that can really help not
just with things like the root pea stability, but also
in general trans of econome activity. It's an industry for
the future. Sure what is included in.
Speaker 2 (10:45):
That you said it and what other industries are leading
within that? With services exports.
Speaker 3 (10:50):
VPO, so business process outsourcing say IT services and BPO
services are typically what account for most of indist service exports.
Similar sort of with the Philippines in that space where
IT services and BPO services because of the English language
skills that sort of trently globally from both Indian and
Philippines that they've been sort of the main players in
(11:12):
Asia in this space.
Speaker 1 (11:13):
Is that what Infosys does Companies like.
Speaker 3 (11:15):
That, Yeah, essentially, but are far more diversified than that
for sure, But yeah, that's one of their business areas
is that.
Speaker 2 (11:22):
Potentially threatened by artificial intelligence? Are we seeing any potential
risk there, like this one bright spot or one of
the bright spots in the economy. Is there a risk of,
for example, these call centers no longer requiring people being
taken over by bots or chats. What are your thoughts.
Speaker 3 (11:41):
I'm no expert on AI, but I could definitely see
that happening, especially at the early stage of any consumer
facing interaction, right where you kind of filter out what's
urgent and what can be resolved by simple queries. I
suspect that we could see some replacement there, especially with
smaller simple customers service questions. But yeah, we've get to
(12:02):
see it, at least we get to see it in
the numbers in terms of service exports. But yeah, sure,
sort of three five years down the line, I wouldn't
be surprised if there's some job lost there because of AI.
Speaker 1 (12:12):
Do you expect GDP growth to slow in the coming
quarters ahead? Especially you sort of mentioned the consumer demand,
how it's waning in factories are slowing. What are the
signs right now in the data and the real economy.
Speaker 3 (12:27):
Yeah, I definitely expect to see GDP growth that continue slowing.
We have forecasts of around the high six percent over
the next few quarters and sort of turning down to
the low six early next year and high fives late
twenty twenty five. So yes, essentially I expect consumer demander
main fairly sluggish. Yes, we had a good growth print
for the most recent report, but consumers are still very
(12:50):
much under pressure in the economy because I feel look
at the state of their household balance sheets is still
very much under pressure and much of the minimum moment
we've seen in consumption has been driven by debts, which
I don't think is sustainable. There was a huge increase
in households borrowing sort of during the post COVID reopening period,
and we're now starting to see this rollover quite sharply investment. Yes, again,
(13:11):
as I mentioned previously, it has been one of the
strong points of the India's economy, but I don't really
expect us to continue, especially in an environment where monetary
policy is likely to remain quite tight. So we've sort
of started to see now the in terms of corporate borrowing,
it hasn't been as strong as as consumer debt, and
I expect some of the momentum that's left in corporate
borrowing to start coming down as well as as the
(13:32):
RBI's industry has from twenty two to twenty twenty three
start to filter through more to the real economy. So yes,
in terms of private domestic land, which is what you
know been broken down to that. It's that's consumption and investment,
the main, real, big parts of Indias economy. I expect
these two main areas to cool over the next few years.
(13:52):
I'm not expecting a crash. Don't get me wrong, right,
I am bearish on India, but it's not like I'm
expecting it to be a doomsday scenario. We're in a
cyclical slowdown and technically these two things will get affected
by type Monte policy type fiscal policy or Titanic fiscal policy,
and there's no escaping that.
Speaker 2 (14:10):
I'm curious how much pushback do you get from clients
or internally on this view.
Speaker 3 (14:17):
Quite a bit, because no one wants to mess with
India as the drawling of the em side, right, and
there's a lot of money now the stark market has
gone gangbusters, and obviously I'm up against that narrative. A
lot of people tend to lose if I'm right, you know,
(14:37):
so I don't mind it that. I don't mind that argument. Normally,
all I have to do is point them to the
actual statistics. And like I said, fifty two percent of
growth last FASCO year was from patistical disturpancies. If you
want to bank on that, that's up to you.
Speaker 1 (14:51):
I don't, yeah, because like, if India grows at the
low six percent level, look, it's still okay compared to
any other country. But there's such high exp for India.
Speaker 3 (15:02):
Yes they are, And I'm still really bullish long term
structurally about Indian growth story. So like I said, typically,
yes I am on downbeach side, but structurally, India has
a lot going for it as compared to most em countries.
You know, it's it's demographic dividend story is still very
much alive and kicking. There's so much potential for labor
to move. So forget you know, the increase in the
(15:24):
workforce over the next few years. The workforce now, and
there's so much untaped potential there because a lot of
them are still engaged in agriculture based on the best estimates,
a lot of that can still move to manufacturing services
where you know, higher productive areas I'm still very bullish
about the structural story of India being a democracy more
stable long term. Yes, it's MESSI but it's more stable
(15:45):
long term. And you know, high saving, straight high investment
rates historically is still very much a factor now that's
going for it. So yeah, yes, I am bullish long term.
Structurally the story is still very solid. I'm not denying that.
But tyclically, I think people are sort of underestimating the
scope of the sharpness of technical slow down over these
(16:05):
next few years.
Speaker 2 (16:08):
What does that mean more broadly for competition with China?
For example, We've seen this narrative play out. China's economy
is structurally slowing, I think, faster than a lot of
economists had expected. We're not seeing any signs of increased
fiscal spending to boost that or change that picture. And
(16:30):
India is also now slowing as well. Does this sort
of narrow the gap maybe a little bit between those
two countries, Yeah.
Speaker 3 (16:38):
A little bit, but you kind of have a squint
to see it. I guess the difference is in scale, right,
So China is a seventeen point something jillion dollar economy,
India is three point five at least last year, and
a seventeen point five trillion dollar economy growing at five
percent versus a three point five trillion dollar economy at
(17:00):
seven percent, there's still no match to that. So even
even the Chinese headline growth is lowered, I looked at
the numbers on this yesterday. Roughly speaking, in real terms,
China's growth is producing a new Thailand and Philippines every year.
In real terms, India's growth Indians growth, Yes, it's at
a higher seven percent, save a seven eight percent, but
(17:20):
from a much lower base of a three point five
trillion to ole economy isn't even producing a whole Vietnam.
So if you look at that in those terms of
real you know, dollar output in fishing and justine terms,
how much these two economists are growing, all Chinese is
adding to the world economy four times more than what
India is just because of scale. So yes, there is
(17:42):
some ketchup there, but again, like I said, you have
to squint to see it, and it'll probably be retired
by then. When when when in India actually does ketchup?
Because it's going to take a long time and the
scale difference is just so vast that yes, there's ketchup,
But it's it's minimal.
Speaker 1 (17:58):
Go just to further discuss this point in the relationship
with China, a lot of people talk about China plus
one and how India is a big beneficiary, and we've
seen companies like Apple slow down their production in China
and produce more in India. Are we starting to see
these come through in the numbers like the economic GDP numbers.
Speaker 3 (18:19):
It's hard to say, because I mean, yes, yes, I'm
aware of that trend, and it does benefit India sectorally
at some level. But if you look at manufacturing as
a share of GDP and yeah, it's been fairly constant
around seventeen percent over the last few years. So if
I was to see a material boost in that story
of you know, China plus one benefiting the likes of India,
(18:40):
then I I'd really want to see shares of manufacturing,
shares of export merchandise export grow as a percentage of
the economy relative to where they were before. But I mean,
in this is just one of the main beneficiaries of
this sort of diversification away from China. Most of this
is still largely benefiting countries in Asian so you know,
Vietnams for example, prime beneficiary of the Chinnel plus one story.
(19:04):
I'd say what's sort of underappreciated on the India side
is that there are a lot of reasons why companies
are hesitating to invest more in India in this space.
So the labor law still remain very strict. As I
mentioned previously, a lot of the workforce is still tied
up in agriculture and a lot of that constraint is
policy based, right. So for example, India has a very
(19:26):
well known minimum support system for agricultural prices which basically
guarantee farmers you know who plant rice and wheat and
what have you, guaranteed income un their produce. Why would
someone who's forming, who has this risable for lack of
a better term, take the risk of moving into a
different sector if they have a guaranteed income, because the
government in India really supports the agricultural sector to that degree. So, yes,
(19:51):
there is potential for India to be a bigger player
in global trade and manufacturing because of the Chinnel plus
one story, but there are a lot of policy reasons
why India probably won't read the benefit as fast as
say others like Vietnam or in Southeast Asia.
Speaker 2 (20:06):
I want to ask about the implications for macro policy
of slower economy, especially after the second quarter data missed
even the central bank estimates. Do you see the RBI
moving faster as a result of that? What are your
expectations for when they'll start cutting rates?
Speaker 3 (20:29):
I mean, i'd like to think so else my forecasts
are wrong. So we were sort of above consensus in
their respect that we expect fifty basis points of cuts
from DARBA this year, whereas consensus at the moment last
time I checked at least was twenty five bas points,
so's not too far. But we're expecting the arbited to
cut much sooner, so from the October meeting. And yes,
i'd like to think that because Q two from the
(20:52):
physically your perspective, Q one missed the RBI's seven point
one or seven point two forecasts, that they'll start looking
more into supporting growth. But from what I read about
what the governor said a few days ago, they already
have a ready mid excuse for y Q one missed, right,
so they're blaming the election for it. It sounds like
there's still no real appetite in the RBI to eat
(21:13):
monetary policy anytime soon. But I think essentially the RBA
has been behind the curve in terms of easing because
we've had core inflation now that that's been historically low
in India for a number of months, and that's really
what no RB should be focusing on that because that's
where the headline wage will eventually converge and follow going forward.
So yes, I'd like to think that we'll see some
(21:35):
easing in the immediate future in terms of the RIIS policy,
But it sounds like, at least from the most recent
rhetoric from the governor, that they've got ready mid excuse
why not? Why why do stand pat at least in
the next meeting?
Speaker 2 (21:50):
Why didn't inflation take hold in India as much as
in other countries, even neighboring countries.
Speaker 3 (21:57):
Well, much of why India sort of shielded from twenty
twenty three is because there's been an implicit fix on
prices in India. So a lot of the all retail
side to pump prices and stuff is still very much
managed by huge state owned companies. And yes, India the
government itself won't say that, you know, we've held prices
(22:17):
pretty much frozen since the invasion of Ukraine two years ago.
But that's basically what's happening, what's been happening. So India
never really felt this huge jump in energy prices the
same way a lot of economies in the EM space did.
So that's one big difference. Secondly, India has also been
one of the main beneficiaries quote unquote to say of
(22:38):
the scarcity and resource So India blocked wheat if you
go back two years ago, India blocked wheat exports to
help the in domestic in fission situation. That at the
expense of inflation elsewhere. Of course, same thing with rice
last year. You know, India has been a bit more
protectionist on the agri side, which has helped to manage
the domestic mastecture. But like I said, at the expense
(22:59):
of you know, higher inflation elsewhere where, other countries' injuries
and our net reed borders of these commodities.
Speaker 2 (23:06):
That could be a whole other conversation fiscal policy, protectionist
policy versus monetary policy, and controlling inflation.
Speaker 1 (23:13):
Absolutely, it's been an educational discussion on India the way
it accounts for its GDP and potential cyclical slowdown going forward.
Thanks Miguel for coming on the show.
Speaker 3 (23:27):
Thank you very much guys for having me. It's been
a pleasure.
Speaker 1 (23:30):
I'm John Lee in Hong Kong.
Speaker 2 (23:31):
I'm Katadmitriyeva, also in Hong Kong.
Speaker 1 (23:34):
This podcast was produced by Clara Chen and you've been
listening to the Asia Centric podcast
Hosts And Creators
John Lee
Tom Corbett
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
True Crime Tonight
If you eat, sleep, and breathe true crime, TRUE CRIME TONIGHT is serving up your nightly fix. Five nights a week, KT STUDIOS & iHEART RADIO invite listeners to pull up a seat for an unfiltered look at the biggest cases making headlines, celebrity scandals, and the trials everyone is watching. With a mix of expert analysis, hot takes, and listener call-ins, TRUE CRIME TONIGHT goes beyond the headlines to uncover the twists, turns, and unanswered questions that keep us all obsessed—because, at TRUE CRIME TONIGHT, there’s a seat for everyone. Whether breaking down crime scene forensics, scrutinizing serial killers, or debating the most binge-worthy true crime docs, True Crime Tonight is the fresh, fast-paced, and slightly addictive home for true crime lovers.