WEBVTT - What To Know Ahead Of India's Election 0:00:10.600 --> 0:00:13.680 Hello, and welcome to another episode of The Odd Lots podcast. 0:00:13.760 --> 0:00:18.279 Time show wasn't And I'm Tracy Allaway. Tracy, Remember, I 0:00:18.320 --> 0:00:22.320 think it was just last week's episode, and I was saying, 0:00:22.440 --> 0:00:26.560 for however much we talk about it, I really feel 0:00:26.600 --> 0:00:28.639 like I have no understanding of what's going on in 0:00:28.680 --> 0:00:33.120 the Chinese economy. Um, yes, it was just last week's episode. 0:00:33.159 --> 0:00:36.280 And I think you're not alone in that sentiment. I 0:00:36.320 --> 0:00:39.320 think a lot of people who are actually actively involved 0:00:39.360 --> 0:00:42.000 in that market are probably just as confused as you are. 0:00:42.440 --> 0:00:44.519 And I remained confused, although I did learn a bit 0:00:44.560 --> 0:00:49.480 after last week's episode. Well, you know, there's another gigantic economy, 0:00:49.600 --> 0:00:53.800 and after thinking about it this morning, it's also really huge, 0:00:54.160 --> 0:00:59.840 and I probably even know less about this economy than China's. Wait, 0:01:00.160 --> 0:01:04.120 uh an economy almost as big. You said, Yeah, well 0:01:04.120 --> 0:01:07.720 it's not China, and it's obviously not the US. What's 0:01:07.760 --> 0:01:13.200 another Really, it has to be India. Yeah, so right, 0:01:13.200 --> 0:01:16.240 here's another country of the billion people, huge emerging market. 0:01:16.720 --> 0:01:19.640 And when I think about it, I realized, wow, I 0:01:19.680 --> 0:01:22.280 even know less about how the Indian economy functions. In 0:01:22.360 --> 0:01:25.280 the state of the Indian economy right now, uh than 0:01:25.920 --> 0:01:30.360 China's yeah, and obviously India is, Um. Well, it's a 0:01:30.360 --> 0:01:34.000 big economy. It's also a fast growing economy relative to 0:01:34.200 --> 0:01:35.760 a lot of others out there in the world. But 0:01:35.840 --> 0:01:39.360 it's also kind of unique in many ways. And whenever 0:01:39.400 --> 0:01:41.200 I think about India, one of the things that always 0:01:41.200 --> 0:01:44.800 springs to mind is the uniqueness of its market, Like 0:01:44.840 --> 0:01:48.360 it's still a very closed off market in many many ways. 0:01:48.720 --> 0:01:52.720 Do you mean do you mean financial markets specifically financial markets? Yes, 0:01:52.760 --> 0:01:54.960 I should be clear, right, So I think not a 0:01:55.000 --> 0:01:56.760 lot of people talk about it, and not a lot 0:01:56.760 --> 0:01:59.280 of people discuss it. Certainly it doesn't get as much 0:01:59.280 --> 0:02:02.640 attention in China, and perhaps for good reason, but I 0:02:02.680 --> 0:02:05.400 think it's an important time to be talking about it more. 0:02:05.440 --> 0:02:09.280 As you mentioned, uh, it's growing rapidly. There's also an 0:02:09.360 --> 0:02:13.640 election coming up this year, so I think it's uh, 0:02:13.800 --> 0:02:17.760 it's time that we had a an India episode. I'm excited. 0:02:17.800 --> 0:02:22.240 I'm actually really really interested in the upcoming India elections. Um, 0:02:22.280 --> 0:02:25.200 they haven't the dates haven't actually been announced yet, but 0:02:25.200 --> 0:02:29.280 they could be announced basically any day after we published 0:02:29.320 --> 0:02:33.480 this episode, because we are recording the day before. India 0:02:33.880 --> 0:02:37.880 is also due to release its latest government budget and 0:02:37.919 --> 0:02:42.839 this is like the big set piece from the current administration, 0:02:43.000 --> 0:02:46.959 the Modi government, um the Nationalist government, and it's gonna 0:02:46.960 --> 0:02:48.760 be really interesting to see what they do and whether 0:02:48.800 --> 0:02:50.760 they pull out all the stops to try to win 0:02:50.840 --> 0:02:54.480 support ahead of the election. So in light of all 0:02:54.520 --> 0:02:57.200 of this news that's about to happen, I think we 0:02:57.200 --> 0:03:00.480 should get started today. We have two guests, two very 0:03:00.520 --> 0:03:03.679 smart commenters on all things macro and they know a 0:03:03.680 --> 0:03:07.320 lot about India, my own sex Saria of Macro Risk 0:03:07.440 --> 0:03:11.880 Advisors and Serenavas tra Vedanta of the Jerome Levy Forecasting Center, 0:03:12.280 --> 0:03:15.320 both of them joining us here in studio to talk 0:03:15.320 --> 0:03:19.079 about the election and the economy and the markets. And 0:03:19.760 --> 0:03:22.200 thank you both for coming in. Thank you, thank you 0:03:22.240 --> 0:03:27.640 crazy thanks guys. So, uh, let's get started first. Let's 0:03:27.639 --> 0:03:30.760 talk about the election it's coming up with. As Tracy mentioned, 0:03:30.840 --> 0:03:34.200 we don't know the exact dates, but uh, both of 0:03:34.240 --> 0:03:36.320 you and Snavas, you could start first. What are you 0:03:36.360 --> 0:03:39.360 going to be watching for in this election? Well, you know, 0:03:39.600 --> 0:03:42.360 I mean it all comes down to the economy. As 0:03:42.440 --> 0:03:46.880 James Scottville famously said, it's the economy stupid. And you know, curiously, 0:03:47.200 --> 0:03:50.520 all the discussion in India is not much about the economy. 0:03:50.640 --> 0:03:54.280 It's all about you know, combinations, cast politics and all 0:03:54.320 --> 0:03:57.960 that stuff. You know, it's it rarely is about the economy. 0:03:58.000 --> 0:04:00.680 But I actually look back in to the history of 0:04:00.680 --> 0:04:04.440 the last eleven elections and I looked at you've just 0:04:04.560 --> 0:04:07.920 simple prediction using a simple model of how GDP has 0:04:07.960 --> 0:04:11.080 done during the term of the incumbent government compared to 0:04:11.120 --> 0:04:14.160 the previous five years, and that has predicted nine over 0:04:14.280 --> 0:04:17.520 the eleven directions. It is the economy stupid, and I 0:04:17.520 --> 0:04:21.360 think Indian electorate is not given enough credit. They They 0:04:21.400 --> 0:04:24.560 are actually pretty savvy in that regard. I think that's 0:04:24.560 --> 0:04:29.080 exactly right. The participation rate and in the for elections 0:04:29.240 --> 0:04:34.000 is in the sixties, much higher than say most drop markets, 0:04:34.480 --> 0:04:39.039 and that is trended higher over time. And the sort 0:04:39.080 --> 0:04:43.840 of incumbency anti incumbency that Samas mentioned has become more 0:04:43.920 --> 0:04:52.839 correlated with economic outcomes than social or religious related outcomes 0:04:53.040 --> 0:04:54.880 than it used to be in the past. So in 0:04:54.960 --> 0:04:57.880 many ways, I sort of see this as a maturation 0:04:58.480 --> 0:05:01.279 of the Indian electorate. It's very easy to forget sometimes 0:05:01.600 --> 0:05:05.560 that the country is not even seventy years old. Basically 0:05:05.600 --> 0:05:09.560 starting seven so it's a very very young country, and 0:05:09.760 --> 0:05:13.120 I sometimes think about it as a parallel to the 0:05:13.200 --> 0:05:15.720 US maybe a hundred years ago, where you have a 0:05:15.720 --> 0:05:19.839 sort of state laboratory style model, where you can have 0:05:19.960 --> 0:05:24.200 massive variation between what's happening in one state. Was another 0:05:25.040 --> 0:05:27.359 myke on that point. Could we maybe back up for 0:05:27.360 --> 0:05:30.200 a second and could you perhaps walk us through how 0:05:30.279 --> 0:05:34.040 we got to the current point because Moody, you know, 0:05:34.160 --> 0:05:37.920 Moody won his current position. He sort of ran on 0:05:37.960 --> 0:05:42.239 a big, big economic platform. Walk us through what he's 0:05:42.279 --> 0:05:46.919 been promising the Indian electorate and how the governmental system 0:05:47.120 --> 0:05:50.400 actually works, because as Joe alluded to, like it's quite 0:05:50.480 --> 0:05:52.960 different to what we see in other places like the US. 0:05:53.920 --> 0:05:57.719 So at the very high level, the political system or 0:05:57.720 --> 0:06:01.600 the government system in India is a parliamentary system. It's 0:06:01.880 --> 0:06:05.480 sort of a variant of the British system. The voters 0:06:05.520 --> 0:06:07.800 don't vote for a person like in the US, to 0:06:07.880 --> 0:06:11.440 become the head of the state. They vote for local 0:06:11.480 --> 0:06:14.920 elections sort of like essentially, if you imagined, uh, you 0:06:15.080 --> 0:06:17.279 voted for everybody in Congress, and then Congress came together 0:06:17.320 --> 0:06:20.719 and picked based on whoever had the votes in a 0:06:20.760 --> 0:06:24.160 party sense, who's going to lead the government. The other 0:06:24.200 --> 0:06:26.760 differences that it's not a two party system like in 0:06:26.800 --> 0:06:30.520 the US, it's some multi party system similar to say, uh, 0:06:30.600 --> 0:06:33.039 closer to something which people might be more aware of, 0:06:33.120 --> 0:06:35.680 like Germany where you have a number of parties come 0:06:35.720 --> 0:06:37.520 together and then they formed the government and then they 0:06:37.560 --> 0:06:41.640 picked someone based on electoral math to to be the leader. 0:06:42.360 --> 0:06:47.320 More specifically to the current government. So since nine seven 0:06:47.640 --> 0:06:49.760 and Streams might have a more specific answer on this, 0:06:50.320 --> 0:06:54.000 I would say more than eight percenter. Time the government 0:06:54.040 --> 0:06:55.960 has been run by one party, which is the Congress 0:06:56.000 --> 0:07:00.320 Party UM and only since the late nineties has the 0:07:00.360 --> 0:07:05.479 b JP become a national level party of any comport um. 0:07:05.600 --> 0:07:10.920 And they had power from thousand and four previously, and 0:07:11.800 --> 0:07:15.520 two thousand and fourteen was when Moody won. And obviously 0:07:16.040 --> 0:07:18.480 there's a lot of different things that people will promise, 0:07:19.040 --> 0:07:21.640 but really I think it boils down to two things. 0:07:22.320 --> 0:07:24.480 One thing between us already mentioned it was a very 0:07:24.560 --> 0:07:28.920 poor five year run for the economy from two thousand 0:07:28.960 --> 0:07:32.000 and nine to fourteen, And on top of it, there's 0:07:32.080 --> 0:07:38.120 a there's extremely negative sentiment environment for the current government 0:07:38.120 --> 0:07:42.120 of the time, centered on corruption. So Moody came in 0:07:42.320 --> 0:07:45.920 and sort of made himself the centerpiece of this idea 0:07:46.000 --> 0:07:48.680 that he's going to give you good governance which is 0:07:48.960 --> 0:07:53.800 essentially anti corruption and economic outcomes that are better. And 0:07:53.880 --> 0:07:57.320 has Moody delivered on that, both the anti corruption and 0:07:57.480 --> 0:08:00.280 the good governance, you know, I mean, I'm not prevy 0:08:00.320 --> 0:08:02.800 to all the corruption things. This is always hard to improve. 0:08:02.960 --> 0:08:05.600 But from what I have heard, the high level corruption 0:08:05.920 --> 0:08:09.360 is down for sure. And one of the signs that 0:08:09.400 --> 0:08:11.120 corruption is down is also that if you look at 0:08:11.160 --> 0:08:14.560 real estate deals, um, they are down, and real estate 0:08:14.560 --> 0:08:17.280 prices are down because you can't use mostly real estate 0:08:17.280 --> 0:08:19.920 deals are none heavily on cash and there's not enough 0:08:19.920 --> 0:08:23.920 cash in circulation. So in that sense, corruption is down. Yes, 0:08:24.400 --> 0:08:27.400 And you mentioned and just on this sort of delivery 0:08:27.400 --> 0:08:30.160 of economic growth, you talked about the strong relationship between 0:08:30.440 --> 0:08:34.400 electoral results and growth. Has the growth been strong enough 0:08:34.440 --> 0:08:38.080 over the last five years that Moody is likely the favorite. No, 0:08:38.280 --> 0:08:40.160 it is touch and go. I would say it's a 0:08:40.160 --> 0:08:43.199 toss up. The growth has not real growth has been occaish, 0:08:43.280 --> 0:08:45.400 but not strong enough to make it a slam dunk. 0:08:45.600 --> 0:08:47.800 So it's a touch and go. And part of the 0:08:47.800 --> 0:08:51.320 reason why it has not been is the government actually 0:08:51.360 --> 0:08:55.400 has been on an austerity osterity bench much opposed to 0:08:55.400 --> 0:08:59.320 my advice which I've been consistently writic about. Um, they 0:08:59.760 --> 0:09:02.600 see coming into two thousand four, when when this government 0:09:02.640 --> 0:09:06.960 was taking the office, Uh, the India was facing a 0:09:07.000 --> 0:09:09.520 corporate sector deal everaging those huge amount of corps sets 0:09:09.679 --> 0:09:12.720 to debt and banks were struggling with non performing loans, 0:09:12.840 --> 0:09:16.520 huge amounts of nonperforming loans. So basically credit system was shot. 0:09:17.200 --> 0:09:20.000 So in that environment, the government has has to do 0:09:20.040 --> 0:09:22.240 the lifting. If you're going to listen to advice that 0:09:22.240 --> 0:09:25.000 the government has to consolidate its physical house, which the 0:09:25.040 --> 0:09:28.640 moding government started doing. On top of that, they took 0:09:28.679 --> 0:09:33.080 two major very disruptive reforms. One was demonetization and the 0:09:33.120 --> 0:09:37.599 other was GST, the Generalized Sales Tax. So it's a 0:09:37.720 --> 0:09:42.840 national national VAT kind of thing, replacing a huge mess 0:09:42.880 --> 0:09:47.320 of a labyrinthine taxes around the country. So you're doing 0:09:47.360 --> 0:09:50.640 those kind of reforms at the same time you're tightening belt. Uh, 0:09:51.080 --> 0:09:53.320 It's it's not good for growth. I mean, obviously it's 0:09:53.320 --> 0:09:56.920 remarkable that growth has still been reasonably good given this 0:09:57.040 --> 0:10:00.840 kind of policy. So I im mentioned in the intro 0:10:01.000 --> 0:10:04.000 that we have the budget UM coming up. It's supposed 0:10:04.000 --> 0:10:08.360 to be released on a Friday, February second, and it does. 0:10:08.480 --> 0:10:12.880 It does feel like both sides UM are are basically 0:10:12.880 --> 0:10:16.720 sort of ramping up or trying to ramp up their spending. Now, 0:10:16.840 --> 0:10:19.920 Like I think the opposition party recently was pledging a 0:10:19.960 --> 0:10:25.800 minimum income guarantee for farmers. So how how serious are 0:10:25.920 --> 0:10:29.280 people about I guess you'd call it sort of competitive 0:10:29.440 --> 0:10:33.160 populist economic policies. Are they actually going to start spending 0:10:33.200 --> 0:10:38.160 in significant amounts now? Well, you know, I think the 0:10:38.200 --> 0:10:41.840 populist tide in Indian economy has turned. It was no 0:10:41.920 --> 0:10:44.760 longer as populist, even though they make these statements, and 0:10:44.800 --> 0:10:47.839 surely the opposition is far more populist. And I don't 0:10:47.880 --> 0:10:50.760 think Moody is as competitive populist. You know. One of 0:10:50.840 --> 0:10:53.280 his things is he just doesn't give into this kind 0:10:53.320 --> 0:10:56.080 of a populist blackmail. That's been his gig all the time. 0:10:56.240 --> 0:10:59.120 You know, that's why all that people have been talking 0:10:59.160 --> 0:11:02.400 about him, uh stimulating the economy for two or three 0:11:02.440 --> 0:11:04.360 years now, he has not been doing it because that's 0:11:04.400 --> 0:11:06.600 not what he believes and he doesn't believe in giving 0:11:06.640 --> 0:11:10.160 people buying people's vote through Phoebe's He says, look, you 0:11:10.240 --> 0:11:14.520 trust my my policies and it's going to work. And um, 0:11:14.720 --> 0:11:17.760 so maybe he will do something in tomorrow's budget, but 0:11:17.920 --> 0:11:20.280 that would be very much against his instinct. If you 0:11:20.360 --> 0:11:22.439 go back to him when he was chief minister in 0:11:22.720 --> 0:11:25.400 gudarrad Um, he one of the things that he did 0:11:25.520 --> 0:11:27.400 was he took away free power. You know, one of 0:11:27.440 --> 0:11:29.360 the things that all governments give is free power to 0:11:29.400 --> 0:11:32.720 the to farmers. But effectively, what good is free power 0:11:32.720 --> 0:11:35.280 if you don't actually get the power? Right, So he said, look, 0:11:35.480 --> 0:11:37.839 I won't give you free power, but I will ensure 0:11:37.880 --> 0:11:40.080 that you will get power at a reasonable rate, but 0:11:40.120 --> 0:11:42.160 it will be reliable and will be supplied all the time. 0:11:43.120 --> 0:11:46.240 And he'll eventually won on that platform. So you know, 0:11:46.360 --> 0:11:50.040 I mean, I think I don't think he will compete 0:11:50.040 --> 0:11:53.000 on populacy. Well, so on these sort of I guess 0:11:53.000 --> 0:11:55.720 you could call him supply cide reforms or structure reforms 0:11:55.720 --> 0:11:59.439 to the economy, whether it's the nationwide tax system to 0:11:59.679 --> 0:12:03.560 unit by the patchwork, whether it's on just making sure 0:12:03.600 --> 0:12:06.240 the power systems run. Has he, in your view, been 0:12:06.280 --> 0:12:10.000 successful on those things? Does he get the structure reforms 0:12:10.080 --> 0:12:13.240 done that he claims he can do. He has done 0:12:13.320 --> 0:12:15.360 quite a bit, but there's still a lot to be 0:12:15.400 --> 0:12:17.080 done if you look at it from a purely macro 0:12:17.200 --> 0:12:19.920 point of view, you know, with labor and everything. But 0:12:20.320 --> 0:12:24.880 I think his major plank is delivering the stuff that 0:12:25.000 --> 0:12:27.559 most most of us take for granted and developed countries, 0:12:28.320 --> 0:12:33.040 stuff like you know, toilets and electricity. You know, India's 0:12:33.080 --> 0:12:35.720 not even even now fully electrified. You cannot believe this, 0:12:35.800 --> 0:12:39.679 but it's still not fully electrified. So delivering electricity, delivering toilets, 0:12:40.200 --> 0:12:44.839 clean water, you know, those kind of things. Um immunization helped, 0:12:44.920 --> 0:12:47.960 you know, those kind of things, very basic, grass tech stuff. 0:12:49.080 --> 0:12:51.680 I think that's what his his plank is going to be, 0:12:51.880 --> 0:12:54.320 is that. Look, I have given you guys this and 0:12:54.400 --> 0:12:59.040 that's his populous message. So a few points here. One 0:12:59.280 --> 0:13:03.079 I think where I disagree with Novas because I want 0:13:03.080 --> 0:13:05.000 to make sure that this podcast is not everybody agreeing 0:13:05.000 --> 0:13:11.640 on everything. Is that coming into uh there wasn't in 0:13:11.679 --> 0:13:13.240 my view, much of a choice in terms of what 0:13:13.280 --> 0:13:16.480 the government had to do. If you remember at that time, 0:13:17.280 --> 0:13:20.560 uh Morgan Stanley had coined this popular phrase fragile five 0:13:20.640 --> 0:13:23.800 and India is one of them, and nobody talks about 0:13:23.840 --> 0:13:26.400 it that way anymore. And a large part of that 0:13:26.400 --> 0:13:28.400 has to do with what the Central Bank did with 0:13:28.600 --> 0:13:32.120 Rajan at the head at that time and in the 0:13:32.160 --> 0:13:37.000 central government in adjusting one the oil subsidy policy, and 0:13:37.120 --> 0:13:40.600 essentially they disentangle the negative feedback loop from higher oil 0:13:40.679 --> 0:13:44.280 prices to both a bigger deficits of the government and 0:13:44.400 --> 0:13:49.280 the external sector and generally sort of changing the trajectory 0:13:49.600 --> 0:13:54.480 of the fiscal of the fiscal side. Now it is 0:13:54.520 --> 0:13:57.360 fair to maybe say that, Okay, at what point do 0:13:57.400 --> 0:14:00.240 you turn that around and you stopped doing that and 0:14:00.679 --> 0:14:03.680 add sort of government resources that are going to be 0:14:03.800 --> 0:14:06.079 sort of deaf expansionary, but maybe you can handle it now. 0:14:06.679 --> 0:14:08.960 That is a fair point of debate. But I don't 0:14:09.000 --> 0:14:15.080 think that the overall action was entirely unjustified given what 0:14:15.320 --> 0:14:17.040 the situation on the ground. But this is a difference 0:14:17.040 --> 0:14:19.160 between an e M and a t M not being 0:14:19.200 --> 0:14:22.800 able to do countersecut policy when you want to. If 0:14:22.840 --> 0:14:25.440 if if India could do counter cecultical policy when they 0:14:25.440 --> 0:14:27.280 wanted to, they would be the US, but they aren't. 0:14:28.240 --> 0:14:32.480 The other point would be in terms of what are 0:14:32.520 --> 0:14:34.720 they likely to do? I do think that they will 0:14:35.000 --> 0:14:40.240 engage in competitive populism. Maybe there will definitely be a 0:14:40.280 --> 0:14:44.440 gap between what the opposition is promising and what the 0:14:45.040 --> 0:14:47.920 the current party is going to promise. But I am 0:14:48.200 --> 0:14:51.200 while I understand the point that that is not as instinct. 0:14:51.920 --> 0:14:54.120 The instincts get over ridden when the election is three 0:14:54.120 --> 0:15:13.200 months away. I'd be curious to get both your thoughts 0:15:13.240 --> 0:15:16.880 on the structural reforms that have already been mentioned. The 0:15:16.960 --> 0:15:22.240 demonetization move was, I guess is now widely considered a 0:15:22.240 --> 0:15:27.720 pretty unpopular one within India, but typically foreign investors love 0:15:27.920 --> 0:15:31.120 this kind of thing, right, Like everyone talks about em 0:15:31.120 --> 0:15:33.520 and the need for structural reform in India is actually 0:15:33.560 --> 0:15:36.440 doing some of it with some degree of success or 0:15:36.480 --> 0:15:39.520 at least conviction. So how is that playing out both 0:15:39.560 --> 0:15:44.640 domestically and on the international scene. So here's what's happening 0:15:44.640 --> 0:15:48.440 with It happened with demonetization. Whatever the original logic for 0:15:48.520 --> 0:15:51.280 it was. I don't know whether that has ranned out, 0:15:51.760 --> 0:15:54.880 But here's what. What are three good things that have 0:15:54.960 --> 0:15:57.920 come out of it. First of all, the the decline 0:15:57.920 --> 0:16:01.360 in growth that came from demonetization was pretty temporary. Um 0:16:01.400 --> 0:16:04.040 In fact, World Bank has a paper on this based 0:16:04.080 --> 0:16:09.680 on using satellite imagery of electricity electricity intensity. Um So, 0:16:09.800 --> 0:16:13.920 it was a sharp decline but quickly reversed. The benefits 0:16:13.960 --> 0:16:17.640 are one, tax buoyancy and tax collections in the tax 0:16:17.640 --> 0:16:20.920 base has increased. Even FD had an articles tax buoyancy. 0:16:21.000 --> 0:16:22.920 I saw you use that Termainent tweet the other day. 0:16:22.960 --> 0:16:25.880 Tax boyancy is how fast your revenues grow relative to GDP. 0:16:25.960 --> 0:16:29.000 So GDP goes okay, so, um so that has improved 0:16:29.080 --> 0:16:31.720 number one. Number two, the tax collection and the tax 0:16:31.720 --> 0:16:35.480 base have improved. Followed up with g ST. The tax 0:16:35.480 --> 0:16:38.960 base is widened by okay, so that's one. That's a 0:16:39.000 --> 0:16:42.400 major thing. Um so in future. As Mink just pointed out, 0:16:42.440 --> 0:16:44.280 India is not the US, and one of the reasons 0:16:44.320 --> 0:16:45.840 India is not the U S or any e M 0:16:45.920 --> 0:16:48.120 is not a developed market is because it doesn't have 0:16:48.120 --> 0:16:51.000 the physical capacity or the tax base to be able 0:16:51.000 --> 0:16:56.240 to sustain large programs. Well before we uh go further 0:16:56.280 --> 0:17:01.080 down this line, what do you say to my exclaim that, look, 0:17:01.160 --> 0:17:04.919 even if it wasn't the time for austerity due to 0:17:05.200 --> 0:17:08.760 the external situation, India just didn't have the capacity from 0:17:09.640 --> 0:17:12.080 too now to do much more on the fiscal front. No, no, 0:17:12.200 --> 0:17:14.160 I I do. I disagree with that. I think there 0:17:14.240 --> 0:17:17.000 was more capacity than It doesn't mean that they should 0:17:17.040 --> 0:17:19.320 have they should be doing five six pers in like 0:17:19.400 --> 0:17:21.560 China does you know nothing, nothing of the stock, but 0:17:21.880 --> 0:17:24.560 significantly more than what they did. So I think it's 0:17:24.560 --> 0:17:26.920 one of degree. I think I think he probably would 0:17:26.920 --> 0:17:30.760 agree with that. Yeah, I think maybe two years ago 0:17:30.840 --> 0:17:33.720 they could have turned things around once it became clear 0:17:33.720 --> 0:17:37.560 that the currency was sort of generally stabilized, because I 0:17:37.600 --> 0:17:41.920 don't think foreign investors honestly are looking at, oh my god, 0:17:42.119 --> 0:17:45.600 the GDP, that the GDP is like thirty business points hire, 0:17:45.600 --> 0:17:46.840 So I'm not going to take all their money out. 0:17:47.560 --> 0:17:49.879 The other thing related to that is to trace these 0:17:49.960 --> 0:17:53.480 questions around how are foreign investors, you know, sort of 0:17:53.520 --> 0:17:56.320 generally involved in this market. I think initially she made 0:17:56.320 --> 0:17:58.720 the point that it's sort of a you know, low 0:17:59.640 --> 0:18:02.040 connect tipt market foreigners. I don't think actually that's right. 0:18:02.440 --> 0:18:05.560 On the equity side, it's a forty plus percide ownership 0:18:06.040 --> 0:18:08.960 by foreigners, so but on the that side it's in 0:18:09.000 --> 0:18:12.560 the single digits. So the so the difference is compared 0:18:12.600 --> 0:18:16.480 to most other em it's the equity ownership that tends 0:18:16.520 --> 0:18:19.960 to be the capital counter risk as opposed to the 0:18:20.000 --> 0:18:23.400 dead ownership, and it has very little compared to most 0:18:23.400 --> 0:18:26.200 countries dollar debt, So it's it's a very low dollarization 0:18:26.200 --> 0:18:28.840 economy and therefore it can sort of sustain a lot 0:18:28.840 --> 0:18:32.080 of these other problems. Uh that that happened in this 0:18:32.520 --> 0:18:35.919 place like Indonesia or Mexico where foreigners on a lot 0:18:35.960 --> 0:18:38.000 of bonds, they on a lot of dollar debt. Well, 0:18:38.040 --> 0:18:40.760 I was just gonna ask, I mean this, uh, summer 0:18:40.800 --> 0:18:46.920 of eighteen, we saw various countries get in trouble, Turkey, Argentina, 0:18:47.440 --> 0:18:51.520 coinciding with a pretty sharp jump in um oil prices, 0:18:51.800 --> 0:18:56.200 and so that really exacerbated some of their external tensions. 0:18:56.320 --> 0:18:59.400 And I think I think in both of those cases 0:18:59.520 --> 0:19:03.600 pretty levels of dollarrization in the economy. India also had 0:19:03.680 --> 0:19:07.119 doesn't produce any oil, has a lot of oil import bills, 0:19:07.160 --> 0:19:10.359 but that but they didn't struggles much. Well, the rupee 0:19:10.359 --> 0:19:12.920 did come under pressure, but they didn't struggle as much 0:19:12.920 --> 0:19:15.880 because the results were high and you know, the situation 0:19:15.920 --> 0:19:18.840 was much better as compared to two. But on the 0:19:18.920 --> 0:19:22.119 point on equity ownership, you know what has happened is 0:19:22.200 --> 0:19:25.520 here the one of the consequences of demonetization is what 0:19:25.640 --> 0:19:28.760 you've done is you push people out of the cash economy, right, 0:19:28.800 --> 0:19:31.719 So a lot of people who had black money, what 0:19:31.760 --> 0:19:34.680 they would typically do is either keep it in gold 0:19:34.840 --> 0:19:37.840 or by real estate, right, so those were the two 0:19:37.960 --> 0:19:42.800 favored destinations. By pushing people away to more formal sector, 0:19:43.400 --> 0:19:47.000 you are actually financializing the economy. So the financial participation 0:19:47.240 --> 0:19:50.959 in equity markets has increased leaps and bounds since two 0:19:51.000 --> 0:19:54.760 thou sixteen, when after demonetization there's a big break in 0:19:54.920 --> 0:19:59.880 mutual fund influence, steady influence steadily increasing. So domestic PARTI 0:20:00.040 --> 0:20:04.120 patient has actually been a buffer against foreign this year 0:20:04.240 --> 0:20:07.880 foreign last year. Foreign institutional investors have been actually taking 0:20:07.880 --> 0:20:10.920 money out of Indian equity, but it was buffered by 0:20:11.880 --> 0:20:15.120 by the domestic investors bringing in money. So that's been 0:20:15.160 --> 0:20:18.600 one of the impact of you know, eventually stabilization of 0:20:18.600 --> 0:20:21.840 the economy and more formalization of the economy. One thing 0:20:21.880 --> 0:20:24.560 that's helped on that front, also from the policy side, 0:20:25.119 --> 0:20:29.679 is that the government pushed for significant increase in simply 0:20:30.240 --> 0:20:33.320 linking people to bank accounts. So then thea say five 0:20:33.400 --> 0:20:36.760 years ago, it was probably in the teens in terms 0:20:36.760 --> 0:20:38.639 of percentage of people who even had a bank account, 0:20:38.680 --> 0:20:41.360 let alone people who had credit um and that has 0:20:41.440 --> 0:20:45.159 jumped massively. So now you have people who are linked 0:20:45.240 --> 0:20:48.280 into some sort of system and as are maybe shouldn't 0:20:48.280 --> 0:20:50.040 ask talk about a little bit more is a sort 0:20:50.040 --> 0:20:53.440 of social security number type system that was Also, this 0:20:53.520 --> 0:20:56.480 is not a current government thing. This has been existing 0:20:56.920 --> 0:20:59.800 and been pushed for the last ten plus years, but 0:21:00.080 --> 0:21:02.800 it has sort of gone exponential in terms of coverage. 0:21:03.040 --> 0:21:07.639 So you have a lot of simply formalization of the 0:21:07.640 --> 0:21:10.439 economy that is taking place, which is not very sexy. 0:21:10.560 --> 0:21:13.480 It's not a creative to GDP in the moment, it 0:21:13.560 --> 0:21:15.199 might not even be a creative to GDP in five 0:21:15.280 --> 0:21:18.120 years time. But what it is doing it's it's building 0:21:18.240 --> 0:21:22.119 institutional or state capacity to use a sort of more 0:21:22.200 --> 0:21:25.280 formal term, that is that sort of board well for 0:21:25.320 --> 0:21:28.840 putting a floor on growth over time. The on on 0:21:28.960 --> 0:21:34.520 oil to the earlier point, I make two comments. One, actually, 0:21:34.600 --> 0:21:37.920 oddly enough, India has become a pretty significant exporter of 0:21:38.520 --> 0:21:41.240 oil from a product site because there's a big oil 0:21:41.280 --> 0:21:45.280 industry and actually the biggest company in India's is Reliance, 0:21:45.680 --> 0:21:49.200 which is an oil producer. So oil is a bit complicated. 0:21:49.600 --> 0:21:51.800 But also and this, you know, going back to the 0:21:51.840 --> 0:21:55.160 fiscal sort of contraction point. The one of the ways 0:21:55.160 --> 0:21:57.359 that the fiscal is to expand when oil prices went 0:21:57.440 --> 0:21:59.760 up was because the government essentially would step in and 0:22:00.040 --> 0:22:02.800 protect the consumer completely, so the consumer would not see 0:22:02.800 --> 0:22:05.280 any price increases, so you would have garn account increase 0:22:06.080 --> 0:22:08.600 into more deficit and the fiscal increase dollar for dollar. 0:22:09.119 --> 0:22:12.199 They essentially broke that linkage, and that's part of the 0:22:12.200 --> 0:22:15.119 reason why when you had this big problem in Turkey, 0:22:15.520 --> 0:22:18.440 you did not have that in India because that the 0:22:18.480 --> 0:22:21.280 fiscal reform had taken place. And you know, this is 0:22:21.320 --> 0:22:23.800 part of the small disagreement the Trense and are having here. 0:22:23.840 --> 0:22:25.320 I think that was the right thing to do, because 0:22:25.520 --> 0:22:27.080 would it have been better if that spend a little 0:22:27.080 --> 0:22:30.160 bit more money versus so the currency getting smashed ten 0:22:30.240 --> 0:22:33.160 percent further, it's not obvious to me that the tradeoff 0:22:33.560 --> 0:22:37.000 was wrong. But this was my point about structural reforms 0:22:37.080 --> 0:22:41.400 and attracting foreign investors versus how the domestic population might 0:22:41.440 --> 0:22:45.080 feel about these reforms. At what point does you know, 0:22:45.359 --> 0:22:50.240 strengthening institutions in various ways, introducing these supply side reforms, 0:22:50.560 --> 0:22:53.639 at what point does that actually feed into the economy 0:22:53.760 --> 0:22:57.719 and make everyone feel much better about their own place 0:22:57.880 --> 0:23:00.760 in the world, because I imagine at some point people 0:23:00.800 --> 0:23:03.439 start to run out of patients and that's when you 0:23:03.520 --> 0:23:06.480 come to sort of a crunch point for the government. 0:23:06.560 --> 0:23:09.640 And at that point, that's when they might start introducing 0:23:09.680 --> 0:23:13.159 these sort of competitive populist fiscal policies like we were 0:23:13.200 --> 0:23:16.320 talking about earlier. These things, you know, they are they 0:23:16.320 --> 0:23:19.400 are complicated because they what they are doing is they're 0:23:19.400 --> 0:23:21.879 setting the scene. Doesn't mean that I think growth is 0:23:21.920 --> 0:23:24.400 going to take off, right, uh. And if you look 0:23:24.440 --> 0:23:27.200