Speaker 1: Hello, and welcome to another episode of The Odd Lots podcast.
Speaker 1: Time show wasn't And I'm Tracy Allaway. Tracy, Remember, I
Speaker 1: think it was just last week's episode, and I was saying,
Speaker 1: for however much we talk about it, I really feel
Speaker 1: like I have no understanding of what's going on in
Speaker 1: the Chinese economy. Um, yes, it was just last week's episode.
Speaker 1: And I think you're not alone in that sentiment. I
Speaker 1: think a lot of people who are actually actively involved
Speaker 1: in that market are probably just as confused as you are.
Speaker 1: And I remained confused, although I did learn a bit
Speaker 1: after last week's episode. Well, you know, there's another gigantic economy,
Speaker 1: and after thinking about it this morning, it's also really huge,
Speaker 1: and I probably even know less about this economy than China's. Wait,
Speaker 1: uh an economy almost as big. You said, Yeah, well
Speaker 1: it's not China, and it's obviously not the US. What's
Speaker 1: another Really, it has to be India. Yeah, so right,
Speaker 1: here's another country of the billion people, huge emerging market.
Speaker 1: And when I think about it, I realized, wow, I
Speaker 1: even know less about how the Indian economy functions. In
Speaker 1: the state of the Indian economy right now, uh than
Speaker 1: China's yeah, and obviously India is, Um. Well, it's a
Speaker 1: big economy. It's also a fast growing economy relative to
Speaker 1: a lot of others out there in the world. But
Speaker 1: it's also kind of unique in many ways. And whenever
Speaker 1: I think about India, one of the things that always
Speaker 1: springs to mind is the uniqueness of its market, Like
Speaker 1: it's still a very closed off market in many many ways.
Speaker 1: Do you mean do you mean financial markets specifically financial markets? Yes,
Speaker 1: I should be clear, right, So I think not a
Speaker 1: lot of people talk about it, and not a lot
Speaker 1: of people discuss it. Certainly it doesn't get as much
Speaker 1: attention in China, and perhaps for good reason, but I
Speaker 1: think it's an important time to be talking about it more.
Speaker 1: As you mentioned, uh, it's growing rapidly. There's also an
Speaker 1: election coming up this year, so I think it's uh,
Speaker 1: it's time that we had a an India episode. I'm excited.
Speaker 1: I'm actually really really interested in the upcoming India elections. Um,
Speaker 1: they haven't the dates haven't actually been announced yet, but
Speaker 1: they could be announced basically any day after we published
Speaker 1: this episode, because we are recording the day before. India
Speaker 1: is also due to release its latest government budget and
Speaker 1: this is like the big set piece from the current administration,
Speaker 1: the Modi government, um the Nationalist government, and it's gonna
Speaker 1: be really interesting to see what they do and whether
Speaker 1: they pull out all the stops to try to win
Speaker 1: support ahead of the election. So in light of all
Speaker 1: of this news that's about to happen, I think we
Speaker 1: should get started today. We have two guests, two very
Speaker 1: smart commenters on all things macro and they know a
Speaker 1: lot about India, my own sex Saria of Macro Risk
Speaker 1: Advisors and Serenavas tra Vedanta of the Jerome Levy Forecasting Center,
Speaker 1: both of them joining us here in studio to talk
Speaker 1: about the election and the economy and the markets. And
Speaker 1: thank you both for coming in. Thank you, thank you
Speaker 1: crazy thanks guys. So, uh, let's get started first. Let's
Speaker 1: talk about the election it's coming up with. As Tracy mentioned,
Speaker 1: we don't know the exact dates, but uh, both of
Speaker 1: you and Snavas, you could start first. What are you
Speaker 1: going to be watching for in this election? Well, you know,
Speaker 1: I mean it all comes down to the economy. As
Speaker 1: James Scottville famously said, it's the economy stupid. And you know, curiously,
Speaker 1: all the discussion in India is not much about the economy.
Speaker 1: It's all about you know, combinations, cast politics and all
Speaker 1: that stuff. You know, it's it rarely is about the economy.
Speaker 1: But I actually look back in to the history of
Speaker 1: the last eleven elections and I looked at you've just
Speaker 1: simple prediction using a simple model of how GDP has
Speaker 1: done during the term of the incumbent government compared to
Speaker 1: the previous five years, and that has predicted nine over
Speaker 1: the eleven directions. It is the economy stupid, and I
Speaker 1: think Indian electorate is not given enough credit. They They
Speaker 1: are actually pretty savvy in that regard. I think that's
Speaker 1: exactly right. The participation rate and in the for elections
Speaker 1: is in the sixties, much higher than say most drop markets,
Speaker 1: and that is trended higher over time. And the sort
Speaker 1: of incumbency anti incumbency that Samas mentioned has become more
Speaker 1: correlated with economic outcomes than social or religious related outcomes
Speaker 1: than it used to be in the past. So in
Speaker 1: many ways, I sort of see this as a maturation
Speaker 1: of the Indian electorate. It's very easy to forget sometimes
Speaker 1: that the country is not even seventy years old. Basically
Speaker 1: starting seven so it's a very very young country, and
Speaker 1: I sometimes think about it as a parallel to the
Speaker 1: US maybe a hundred years ago, where you have a
Speaker 1: sort of state laboratory style model, where you can have
Speaker 1: massive variation between what's happening in one state. Was another
Speaker 1: myke on that point. Could we maybe back up for
Speaker 1: a second and could you perhaps walk us through how
Speaker 1: we got to the current point because Moody, you know,
Speaker 1: Moody won his current position. He sort of ran on
Speaker 1: a big, big economic platform. Walk us through what he's
Speaker 1: been promising the Indian electorate and how the governmental system
Speaker 1: actually works, because as Joe alluded to, like it's quite
Speaker 1: different to what we see in other places like the US.
Speaker 1: So at the very high level, the political system or
Speaker 1: the government system in India is a parliamentary system. It's
Speaker 1: sort of a variant of the British system. The voters
Speaker 1: don't vote for a person like in the US, to
Speaker 1: become the head of the state. They vote for local
Speaker 1: elections sort of like essentially, if you imagined, uh, you
Speaker 1: voted for everybody in Congress, and then Congress came together
Speaker 1: and picked based on whoever had the votes in a
Speaker 1: party sense, who's going to lead the government. The other
Speaker 1: differences that it's not a two party system like in
Speaker 1: the US, it's some multi party system similar to say, uh,
Speaker 1: closer to something which people might be more aware of,
Speaker 1: like Germany where you have a number of parties come
Speaker 1: together and then they formed the government and then they
Speaker 1: picked someone based on electoral math to to be the leader.
Speaker 1: More specifically to the current government. So since nine seven
Speaker 1: and Streams might have a more specific answer on this,
Speaker 1: I would say more than eight percenter. Time the government
Speaker 1: has been run by one party, which is the Congress
Speaker 1: Party UM and only since the late nineties has the
Speaker 1: b JP become a national level party of any comport um.
Speaker 1: And they had power from thousand and four previously, and
Speaker 1: two thousand and fourteen was when Moody won. And obviously
Speaker 1: there's a lot of different things that people will promise,
Speaker 1: but really I think it boils down to two things.
Speaker 1: One thing between us already mentioned it was a very
Speaker 1: poor five year run for the economy from two thousand
Speaker 1: and nine to fourteen, And on top of it, there's
Speaker 1: a there's extremely negative sentiment environment for the current government
Speaker 1: of the time, centered on corruption. So Moody came in
Speaker 1: and sort of made himself the centerpiece of this idea
Speaker 1: that he's going to give you good governance which is
Speaker 1: essentially anti corruption and economic outcomes that are better. And
Speaker 1: has Moody delivered on that, both the anti corruption and
Speaker 1: the good governance, you know, I mean, I'm not prevy
Speaker 1: to all the corruption things. This is always hard to improve.
Speaker 1: But from what I have heard, the high level corruption
Speaker 1: is down for sure. And one of the signs that
Speaker 1: corruption is down is also that if you look at
Speaker 1: real estate deals, um, they are down, and real estate
Speaker 1: prices are down because you can't use mostly real estate
Speaker 1: deals are none heavily on cash and there's not enough
Speaker 1: cash in circulation. So in that sense, corruption is down. Yes,
Speaker 1: And you mentioned and just on this sort of delivery
Speaker 1: of economic growth, you talked about the strong relationship between
Speaker 1: electoral results and growth. Has the growth been strong enough
Speaker 1: over the last five years that Moody is likely the favorite. No,
Speaker 1: it is touch and go. I would say it's a
Speaker 1: toss up. The growth has not real growth has been occaish,
Speaker 1: but not strong enough to make it a slam dunk.
Speaker 1: So it's a touch and go. And part of the
Speaker 1: reason why it has not been is the government actually
Speaker 1: has been on an austerity osterity bench much opposed to
Speaker 1: my advice which I've been consistently writic about. Um, they
Speaker 1: see coming into two thousand four, when when this government
Speaker 1: was taking the office, Uh, the India was facing a
Speaker 1: corporate sector deal everaging those huge amount of corps sets
Speaker 1: to debt and banks were struggling with non performing loans,
Speaker 1: huge amounts of nonperforming loans. So basically credit system was shot.
Speaker 1: So in that environment, the government has has to do
Speaker 1: the lifting. If you're going to listen to advice that
Speaker 1: the government has to consolidate its physical house, which the
Speaker 1: moding government started doing. On top of that, they took
Speaker 1: two major very disruptive reforms. One was demonetization and the
Speaker 1: other was GST, the Generalized Sales Tax. So it's a
Speaker 1: national national VAT kind of thing, replacing a huge mess
Speaker 1: of a labyrinthine taxes around the country. So you're doing
Speaker 1: those kind of reforms at the same time you're tightening belt. Uh,
Speaker 1: It's it's not good for growth. I mean, obviously it's
Speaker 1: remarkable that growth has still been reasonably good given this
Speaker 1: kind of policy. So I im mentioned in the intro
Speaker 1: that we have the budget UM coming up. It's supposed
Speaker 1: to be released on a Friday, February second, and it does.
Speaker 1: It does feel like both sides UM are are basically
Speaker 1: sort of ramping up or trying to ramp up their spending. Now,
Speaker 1: Like I think the opposition party recently was pledging a
Speaker 1: minimum income guarantee for farmers. So how how serious are
Speaker 1: people about I guess you'd call it sort of competitive
Speaker 1: populist economic policies. Are they actually going to start spending
Speaker 1: in significant amounts now? Well, you know, I think the
Speaker 1: populist tide in Indian economy has turned. It was no
Speaker 1: longer as populist, even though they make these statements, and
Speaker 1: surely the opposition is far more populist. And I don't
Speaker 1: think Moody is as competitive populist. You know. One of
Speaker 1: his things is he just doesn't give into this kind
Speaker 1: of a populist blackmail. That's been his gig all the time.
Speaker 1: You know, that's why all that people have been talking
Speaker 1: about him, uh stimulating the economy for two or three
Speaker 1: years now, he has not been doing it because that's
Speaker 1: not what he believes and he doesn't believe in giving
Speaker 1: people buying people's vote through Phoebe's He says, look, you
Speaker 1: trust my my policies and it's going to work. And um,
Speaker 1: so maybe he will do something in tomorrow's budget, but
Speaker 1: that would be very much against his instinct. If you
Speaker 1: go back to him when he was chief minister in
Speaker 1: gudarrad Um, he one of the things that he did
Speaker 1: was he took away free power. You know, one of
Speaker 1: the things that all governments give is free power to
Speaker 1: the to farmers. But effectively, what good is free power
Speaker 1: if you don't actually get the power? Right, So he said, look,
Speaker 1: I won't give you free power, but I will ensure
Speaker 1: that you will get power at a reasonable rate, but
Speaker 1: it will be reliable and will be supplied all the time.
Speaker 1: And he'll eventually won on that platform. So you know,
Speaker 1: I mean, I think I don't think he will compete
Speaker 1: on populacy. Well, so on these sort of I guess
Speaker 1: you could call him supply cide reforms or structure reforms
Speaker 1: to the economy, whether it's the nationwide tax system to
Speaker 1: unit by the patchwork, whether it's on just making sure
Speaker 1: the power systems run. Has he, in your view, been
Speaker 1: successful on those things? Does he get the structure reforms
Speaker 1: done that he claims he can do. He has done
Speaker 1: quite a bit, but there's still a lot to be
Speaker 1: done if you look at it from a purely macro
Speaker 1: point of view, you know, with labor and everything. But
Speaker 1: I think his major plank is delivering the stuff that
Speaker 1: most most of us take for granted and developed countries,
Speaker 1: stuff like you know, toilets and electricity. You know, India's
Speaker 1: not even even now fully electrified. You cannot believe this,
Speaker 1: but it's still not fully electrified. So delivering electricity, delivering toilets,
Speaker 1: clean water, you know, those kind of things. Um immunization helped,
Speaker 1: you know, those kind of things, very basic, grass tech stuff.
Speaker 1: I think that's what his his plank is going to be,
Speaker 1: is that. Look, I have given you guys this and
Speaker 1: that's his populous message. So a few points here. One
Speaker 1: I think where I disagree with Novas because I want
Speaker 1: to make sure that this podcast is not everybody agreeing
Speaker 1: on everything. Is that coming into uh there wasn't in
Speaker 1: my view, much of a choice in terms of what
Speaker 1: the government had to do. If you remember at that time,
Speaker 1: uh Morgan Stanley had coined this popular phrase fragile five
Speaker 1: and India is one of them, and nobody talks about
Speaker 1: it that way anymore. And a large part of that
Speaker 1: has to do with what the Central Bank did with
Speaker 1: Rajan at the head at that time and in the
Speaker 1: central government in adjusting one the oil subsidy policy, and
Speaker 1: essentially they disentangle the negative feedback loop from higher oil
Speaker 1: prices to both a bigger deficits of the government and
Speaker 1: the external sector and generally sort of changing the trajectory
Speaker 1: of the fiscal of the fiscal side. Now it is
Speaker 1: fair to maybe say that, Okay, at what point do
Speaker 1: you turn that around and you stopped doing that and
Speaker 1: add sort of government resources that are going to be
Speaker 1: sort of deaf expansionary, but maybe you can handle it now.
Speaker 1: That is a fair point of debate. But I don't
Speaker 1: think that the overall action was entirely unjustified given what
Speaker 1: the situation on the ground. But this is a difference
Speaker 1: between an e M and a t M not being
Speaker 1: able to do countersecut policy when you want to. If
Speaker 1: if if India could do counter cecultical policy when they
Speaker 1: wanted to, they would be the US, but they aren't.
Speaker 1: The other point would be in terms of what are
Speaker 1: they likely to do? I do think that they will
Speaker 1: engage in competitive populism. Maybe there will definitely be a
Speaker 1: gap between what the opposition is promising and what the
Speaker 1: the current party is going to promise. But I am
Speaker 1: while I understand the point that that is not as instinct.
Speaker 1: The instincts get over ridden when the election is three
Speaker 1: months away. I'd be curious to get both your thoughts
Speaker 1: on the structural reforms that have already been mentioned. The
Speaker 1: demonetization move was, I guess is now widely considered a
Speaker 1: pretty unpopular one within India, but typically foreign investors love
Speaker 1: this kind of thing, right, Like everyone talks about em
Speaker 1: and the need for structural reform in India is actually
Speaker 1: doing some of it with some degree of success or
Speaker 1: at least conviction. So how is that playing out both
Speaker 1: domestically and on the international scene. So here's what's happening
Speaker 1: with It happened with demonetization. Whatever the original logic for
Speaker 1: it was. I don't know whether that has ranned out,
Speaker 1: But here's what. What are three good things that have
Speaker 1: come out of it. First of all, the the decline
Speaker 1: in growth that came from demonetization was pretty temporary. Um
Speaker 1: In fact, World Bank has a paper on this based
Speaker 1: on using satellite imagery of electricity electricity intensity. Um So,
Speaker 1: it was a sharp decline but quickly reversed. The benefits
Speaker 1: are one, tax buoyancy and tax collections in the tax
Speaker 1: base has increased. Even FD had an articles tax buoyancy.
Speaker 1: I saw you use that Termainent tweet the other day.
Speaker 1: Tax boyancy is how fast your revenues grow relative to GDP.
Speaker 1: So GDP goes okay, so, um so that has improved
Speaker 1: number one. Number two, the tax collection and the tax
Speaker 1: base have improved. Followed up with g ST. The tax
Speaker 1: base is widened by okay, so that's one. That's a
Speaker 1: major thing. Um so in future. As Mink just pointed out,
Speaker 1: India is not the US, and one of the reasons
Speaker 1: India is not the U S or any e M
Speaker 1: is not a developed market is because it doesn't have
Speaker 1: the physical capacity or the tax base to be able
Speaker 1: to sustain large programs. Well before we uh go further
Speaker 1: down this line, what do you say to my exclaim that, look,
Speaker 1: even if it wasn't the time for austerity due to
Speaker 1: the external situation, India just didn't have the capacity from
Speaker 1: too now to do much more on the fiscal front. No, no,
Speaker 1: I I do. I disagree with that. I think there
Speaker 1: was more capacity than It doesn't mean that they should
Speaker 1: have they should be doing five six pers in like
Speaker 1: China does you know nothing, nothing of the stock, but
Speaker 1: significantly more than what they did. So I think it's
Speaker 1: one of degree. I think I think he probably would
Speaker 1: agree with that. Yeah, I think maybe two years ago
Speaker 1: they could have turned things around once it became clear
Speaker 1: that the currency was sort of generally stabilized, because I
Speaker 1: don't think foreign investors honestly are looking at, oh my god,
Speaker 1: the GDP, that the GDP is like thirty business points hire,
Speaker 1: So I'm not going to take all their money out.
Speaker 1: The other thing related to that is to trace these
Speaker 1: questions around how are foreign investors, you know, sort of
Speaker 1: generally involved in this market. I think initially she made
Speaker 1: the point that it's sort of a you know, low
Speaker 1: connect tipt market foreigners. I don't think actually that's right.
Speaker 1: On the equity side, it's a forty plus percide ownership
Speaker 1: by foreigners, so but on the that side it's in
Speaker 1: the single digits. So the so the difference is compared
Speaker 1: to most other em it's the equity ownership that tends
Speaker 1: to be the capital counter risk as opposed to the
Speaker 1: dead ownership, and it has very little compared to most
Speaker 1: countries dollar debt, So it's it's a very low dollarization
Speaker 1: economy and therefore it can sort of sustain a lot
Speaker 1: of these other problems. Uh that that happened in this
Speaker 1: place like Indonesia or Mexico where foreigners on a lot
Speaker 1: of bonds, they on a lot of dollar debt. Well,
Speaker 1: I was just gonna ask, I mean this, uh, summer
Speaker 1: of eighteen, we saw various countries get in trouble, Turkey, Argentina,
Speaker 1: coinciding with a pretty sharp jump in um oil prices,
Speaker 1: and so that really exacerbated some of their external tensions.
Speaker 1: And I think I think in both of those cases
Speaker 1: pretty levels of dollarrization in the economy. India also had
Speaker 1: doesn't produce any oil, has a lot of oil import bills,
Speaker 1: but that but they didn't struggles much. Well, the rupee
Speaker 1: did come under pressure, but they didn't struggle as much
Speaker 1: because the results were high and you know, the situation
Speaker 1: was much better as compared to two. But on the
Speaker 1: point on equity ownership, you know what has happened is
Speaker 1: here the one of the consequences of demonetization is what
Speaker 1: you've done is you push people out of the cash economy, right,
Speaker 1: So a lot of people who had black money, what
Speaker 1: they would typically do is either keep it in gold
Speaker 1: or by real estate, right, so those were the two
Speaker 1: favored destinations. By pushing people away to more formal sector,
Speaker 1: you are actually financializing the economy. So the financial participation
Speaker 1: in equity markets has increased leaps and bounds since two
Speaker 1: thou sixteen, when after demonetization there's a big break in
Speaker 1: mutual fund influence, steady influence steadily increasing. So domestic PARTI
Speaker 1: patient has actually been a buffer against foreign this year
Speaker 1: foreign last year. Foreign institutional investors have been actually taking
Speaker 1: money out of Indian equity, but it was buffered by
Speaker 1: by the domestic investors bringing in money. So that's been
Speaker 1: one of the impact of you know, eventually stabilization of
Speaker 1: the economy and more formalization of the economy. One thing
Speaker 1: that's helped on that front, also from the policy side,
Speaker 1: is that the government pushed for significant increase in simply
Speaker 1: linking people to bank accounts. So then thea say five
Speaker 1: years ago, it was probably in the teens in terms
Speaker 1: of percentage of people who even had a bank account,
Speaker 1: let alone people who had credit um and that has
Speaker 1: jumped massively. So now you have people who are linked
Speaker 1: into some sort of system and as are maybe shouldn't
Speaker 1: ask talk about a little bit more is a sort
Speaker 1: of social security number type system that was Also, this
Speaker 1: is not a current government thing. This has been existing
Speaker 1: and been pushed for the last ten plus years, but
Speaker 1: it has sort of gone exponential in terms of coverage.
Speaker 1: So you have a lot of simply formalization of the
Speaker 1: economy that is taking place, which is not very sexy.
Speaker 1: It's not a creative to GDP in the moment, it
Speaker 1: might not even be a creative to GDP in five
Speaker 1: years time. But what it is doing it's it's building
Speaker 1: institutional or state capacity to use a sort of more
Speaker 1: formal term, that is that sort of board well for
Speaker 1: putting a floor on growth over time. The on on
Speaker 1: oil to the earlier point, I make two comments. One, actually,
Speaker 1: oddly enough, India has become a pretty significant exporter of
Speaker 1: oil from a product site because there's a big oil
Speaker 1: industry and actually the biggest company in India's is Reliance,
Speaker 1: which is an oil producer. So oil is a bit complicated.
Speaker 1: But also and this, you know, going back to the
Speaker 1: fiscal sort of contraction point. The one of the ways
Speaker 1: that the fiscal is to expand when oil prices went
Speaker 1: up was because the government essentially would step in and
Speaker 1: protect the consumer completely, so the consumer would not see
Speaker 1: any price increases, so you would have garn account increase
Speaker 1: into more deficit and the fiscal increase dollar for dollar.
Speaker 1: They essentially broke that linkage, and that's part of the
Speaker 1: reason why when you had this big problem in Turkey,
Speaker 1: you did not have that in India because that the
Speaker 1: fiscal reform had taken place. And you know, this is
Speaker 1: part of the small disagreement the Trense and are having here.
Speaker 1: I think that was the right thing to do, because
Speaker 1: would it have been better if that spend a little
Speaker 1: bit more money versus so the currency getting smashed ten
Speaker 1: percent further, it's not obvious to me that the tradeoff
Speaker 1: was wrong. But this was my point about structural reforms
Speaker 1: and attracting foreign investors versus how the domestic population might
Speaker 1: feel about these reforms. At what point does you know,
Speaker 1: strengthening institutions in various ways, introducing these supply side reforms,
Speaker 1: at what point does that actually feed into the economy
Speaker 1: and make everyone feel much better about their own place
Speaker 1: in the world, because I imagine at some point people
Speaker 1: start to run out of patients and that's when you
Speaker 1: come to sort of a crunch point for the government.
Speaker 1: And at that point, that's when they might start introducing
Speaker 1: these sort of competitive populist fiscal policies like we were
Speaker 1: talking about earlier. These things, you know, they are they
Speaker 1: are complicated because they what they are doing is they're
Speaker 1: setting the scene. Doesn't mean that I think growth is
Speaker 1: going to take off, right, uh. And if you look
Speaker 1: through India's history, a lot of things have happened by serendipity,
Speaker 1: but because the structure was in place, they were able
Speaker 1: to take advantage of it. Fall into the software boom, right,
Speaker 1: the the investments in software boom, whether it was in
Speaker 1: the technical education infrastructure, or whether it was in the
Speaker 1: domestic software industry which had been developing since the nineties, sixties, seventies,
Speaker 1: all those things, they were like nobody even cared about
Speaker 1: those things. And certainly when there was a software boom, oh,
Speaker 1: certainly all those things became a strength. Right. So it
Speaker 1: doesn't but that's a long time. We don't know when
Speaker 1: these things are going to benefit and how long it
Speaker 1: will take. And your point is absolutely right. In the meantime, people,
Speaker 1: the electorate gets angry and and frustrated and and clearly
Speaker 1: there are huge aspirations in a young country like India,
Speaker 1: where the youth population is huge. They just don't want
Speaker 1: simple things like free vs. You know, they want jobs,
Speaker 1: They want better prospects and that comes from growth. And yeah, sure,
Speaker 1: I mean I think that those those pressures are there
Speaker 1: in democracy, and um, they will spill over. Yes, This
Speaker 1: is where I would go back to a point that
Speaker 1: I made earlier about sort of uh, sort of a
Speaker 1: state laboratory type set up a perfect example of the
Speaker 1: question that Tracy had already happened. So, Rajasthan is a
Speaker 1: state on the west course of India, and there you
Speaker 1: had a sort of state government which is also a
Speaker 1: b JP one, but a much more aggressive one in
Speaker 1: terms of the reforms that they were trying to pursue,
Speaker 1: including on the labor side, which is one of the
Speaker 1: sort of biggest problems in India. And they pushed them through,
Speaker 1: but it came with a cost in terms of for
Speaker 1: a while depressing growth relative to the rest of the country.
Speaker 1: And they were thrown out of power, So you are
Speaker 1: always sort of dealing with the situation where if you
Speaker 1: push things too far at the cost of growth in
Speaker 1: the moment, are you then taking yourself out of doing
Speaker 1: better forms in the future. So it's it's really an
Speaker 1: optimization problem that I don't think there's any right answer.
Speaker 1: But yeah, it's interesting talking about that sequence because it
Speaker 1: now strikes me listening to this is kind of the
Speaker 1: opposite of China, which we were talking about last week,
Speaker 1: which has just been sort of pedal to the floor
Speaker 1: growth all around the country for a long time and
Speaker 1: now is sort of having to deal with these things.
Speaker 1: I was like, well, what if that model isn't working,
Speaker 1: we actually have to deal with restructuring and restructure where
Speaker 1: the demand came from. It sounds like India is kind
Speaker 1: of doing the opposite, uh, not going pedal to the
Speaker 1: metal with growth, but actually trying to address some of
Speaker 1: these things preemptively too hopefully have a brighter, brighter point
Speaker 1: in the future. Right. But India also faces, as opposed
Speaker 1: to China, more balance of payments um constraints compared to China, Right.
Speaker 1: And the other thing is India goes through these faces
Speaker 1: all the time right. I mean it has these pedal
Speaker 1: to the mental growth phase which it had from two
Speaker 1: thousand four, but then it became unsustainable. It showed up
Speaker 1: in inflation and then eventually balance of payment problems, and
Speaker 1: then the government got voted out because people don't like
Speaker 1: inflation either. That's one of the beauties of democracy. You
Speaker 1: get instant feedback, right and so um so then you
Speaker 1: get through this period of consolidation. But most of the
Speaker 1: time what happens is the government that consolidates does not
Speaker 1: reap the benefits of the consolidation. The same thing happened
Speaker 1: from the government got vooted up and the next government
Speaker 1: enjoyed the benefits of the boom that came. You know.
Speaker 1: That's that's sadly part of democracy. The other sort of
Speaker 1: the comparison to China is really interesting and I you know,
Speaker 1: people make that all the time, a sort of clarification
Speaker 1: thing that or something that really puts the under stock contrast.
Speaker 1: Think about where India is in the credit cyclip versus China.
Speaker 1: Real credit growth over the last seven years has been
Speaker 1: near zero in India, so it and there's been a
Speaker 1: lot of dead consolidation. Even three years ago post TFC
Speaker 1: in dollar terms, the more npls that recognize in India
Speaker 1: than China, and you think about these two countries are
Speaker 1: not actually similar in terms of what their sizes and
Speaker 1: in terms of definitely not similar in terms of what
Speaker 1: the credit in the system is. So uh, a lot
Speaker 1: of this is not by design. I must say that
Speaker 1: this is not as if there's some set of people
Speaker 1: are trying to say, Okay, this is how you want
Speaker 1: to do it. A lot of things happened in India.
Speaker 1: I like Tuniversa's word surrendipity. It just sort of happens.
Speaker 1: Maybe it's because of the democratic structure. Maybe it's because
Speaker 1: of the sort of you know, EU style. They're like
Speaker 1: fift you know, I don't know how many states even anymore.
Speaker 1: They keep changing all the time. Uh, it's very very varied.
Speaker 1: And it what it does is it reduces the chances
Speaker 1: of I think, making bad mistakes. It doesn't have the
Speaker 1: ramp like China US, but it does also it sort
Speaker 1: of puts the floor in some ways in terms of
Speaker 1: how badly things can get screwed up. All Right, So
Speaker 1: we started this podcast by saying it's the economy stupid.
Speaker 1: So if the upcoming elections are all about the economy,
Speaker 1: and then I have to ask who do you think
Speaker 1: is gonna win? As it's a toss up. I think
Speaker 1: at this point it's it's a toss up. It's going
Speaker 1: to be really close, and it's going to come to
Speaker 1: the managing the local coalitions. It's no party is going
Speaker 1: to get enough to form a government on its own, like,
Speaker 1: so you are going to be I think back to
Speaker 1: what in India people called coalition politics, which is you
Speaker 1: sort of cobbled together seemingly people with not lined up
Speaker 1: ideologies and trying to run a government for five years. Uh,
Speaker 1: that is the period where when things don't tend to
Speaker 1: happen quickly enough and people get very frustrated. And I think, uh,
Speaker 1: the risk of that is higher now then it has
Speaker 1: been in in the earlier part of the decade. Well,
Speaker 1: will you both come on for a after the election
Speaker 1: rap and then we sort of analyze what happened and
Speaker 1: then talk about what's next. Sounds good, so we'll plan
Speaker 1: a follow up screen of oz tour of a Dante
Speaker 1: and my aunt Sex. Sorry, thank you very much for
Speaker 1: joining us. I feel like my knowledge is still just
Speaker 1: like scratching the service. But that's more than it was
Speaker 1: this morning. Thanks guys, Thank you Tracy. Well, like I
Speaker 1: said there, I still feel like I probably know nothing,
Speaker 1: but maybe a little bit more than I did before.
Speaker 1: But I did think, I mean, I did learn quite
Speaker 1: a bit and thinking about all these different structural reforms.
Speaker 1: You know, so often you hear that term structural reform
Speaker 1: and it's kind of just some nonsense term that gets
Speaker 1: thrown around by someone trying to sound smart, or it's
Speaker 1: just code word for cutting spending or cutting pensions. But
Speaker 1: it actually seems like the story in India is sort
Speaker 1: of far more nuanced and complicated than a lot of
Speaker 1: discussions about so called structural reform. Yeah, I totally agree,
Speaker 1: and I feel I feel a little well, I feel
Speaker 1: like you. I feel like I should know more about India,
Speaker 1: but sadly, I think most of my knowledge comes from
Speaker 1: Bollywood movies, which sadly don't have enough of political content
Speaker 1: to satisfy a discussion like this. Although I did know
Speaker 1: that many villages in India do not yet have electricity
Speaker 1: because I watched that Shower Khan movie where he goes
Speaker 1: back to his home village and works on electrifying it. Anyway, Sorry,
Speaker 1: I'm gonna go off on a Bollywood tangent um. It
Speaker 1: is really interesting. The last bit of the discussion where
Speaker 1: we were talking about the possibility of a coalition government
Speaker 1: posts the elections. That'll be an interesting one because if
Speaker 1: we think that people aren't satisfied right now under you know,
Speaker 1: a Modi government that has actually been able to get
Speaker 1: quite a few things done, it's going to be really
Speaker 1: really interesting to see how they react to a coalition
Speaker 1: government where there's a lot of uncertainty and maybe the
Speaker 1: possibility that the agenda sort of gets fought over and
Speaker 1: not much gets accomplished. Yeah, it'll be interesting to watch.
Speaker 1: And I really liked a Serinavaz's point about how, for
Speaker 1: better or worse in a democracy, Uh, the government that
Speaker 1: maybe does the difficult stuff of the structural reforms that
Speaker 1: aren't short term growth often doesn't get to reap the reward.
Speaker 1: I mean, I think there's probably you could certainly point
Speaker 1: to several examples in the US where the president, uh,
Speaker 1: just who gets credit for the booming economy just happens
Speaker 1: to be the one who came in after the last
Speaker 1: one got booted out for a recession that maybe was
Speaker 1: caused by something their predecessor did. So Yeah, that's just
Speaker 1: how it goes. But I'm now feel a little bit
Speaker 1: prepared at least to watch the election, and I have
Speaker 1: some knowledge of what people are voting on. It's gonna
Speaker 1: be great and all. So I know we're recording this
Speaker 1: before the budget announcement, but to the earlier conversation about
Speaker 1: whether or not Moody is going to go full on
Speaker 1: populist economic policy Friday, February second will have revealed a
Speaker 1: lot of clues by the time we actually release this podcast. Okay,
Speaker 1: so when you're listening, go read the articles about what
Speaker 1: happened a couple of days before. And on that note,
Speaker 1: this has been another episode of the Odd Lots podcast.
Speaker 1: I'm Joe Wisenthal. You can follow me on Twitter at
Speaker 1: the Stalwart and I'm Tracy Alloway. I'm on Twitter at
Speaker 1: Tracy Alloway. And you should follow both of our guests
Speaker 1: because there are also two of my favorite people to
Speaker 1: follow on Twitter for all things India and macro and
Speaker 1: politics and just a bunch of other stuff. Uh Serena
Speaker 1: vostra Vedanta he's at T three on Twitter, and my
Speaker 1: own Sex Saria He's at my own Sex Saria, so
Speaker 1: definitely you should follow them, and you should definitely follow
Speaker 1: our producer Topur Foreheads. He's at for his tea on
Speaker 1: her as well as the Bloomberg head of podcast Francesco
Speaker 1: Leave at Francesca Today. Thanks for listening.