Speaker 1: Modi has to contend with two chambers of Parliament, twenty
Speaker 1: nine state governments, and a fiercely independent judiciary that thinks
Speaker 1: nothing of tossing out key government decisions such as who
Speaker 1: to cell phone licenses get awarded to. So, Dan, are
Speaker 1: you saying that there's maybe too much democracy in India?
Speaker 1: This episode is brought to you by Needex, the Binary
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Speaker 1: not be appropriate for all investors. Hi, and welcome back
Speaker 1: to Bloomberg Benchmark, a podcas pasked about the global economy.
Speaker 1: It's Thursday, February. I'm Daniel Moss, Executive editor for Global
Speaker 1: Economics in New York. I'm joined by my co host,
Speaker 1: Aki Eto, the acting Tokyo Bureau Chief. Aki Good evening,
Speaker 1: Hi Dan, how are you? I'm pretty good? Thanks. You know,
Speaker 1: we were thinking it's about time we took benchmark on
Speaker 1: the road again and talked about about India. It's often
Speaker 1: compared with China as a rising economic and political power,
Speaker 1: yet probably receives a fraction of the column inches or
Speaker 1: airtime that China gets, and when it does attract attention,
Speaker 1: it's often in the context of natural or man made disasters.
Speaker 1: And yet there's a compelling economic story to be told. Aki,
Speaker 1: you probably know India has a ton of people. It
Speaker 1: actually has almost one point three billion, and by the
Speaker 1: end of two which is not that far away, according
Speaker 1: to the u N, it will have more people than
Speaker 1: China in it. It was also the fastest growing major
Speaker 1: economy in the world last gear, clocking in at seven
Speaker 1: point three That easily beat China's six point eight percent
Speaker 1: and was streets ahead of, say, the US, which grew
Speaker 1: at about two pc. India is also a major manufacturing
Speaker 1: center for the auto industry, for engineering equipment, for electronic components.
Speaker 1: It has a huge software industry and a vibrant services sector, exporting,
Speaker 1: among other things, Bollywood. So I guess there's a lot
Speaker 1: of potential here but also some disappointment. So about two
Speaker 1: years ago, I think Prime Minister Moody was elected on
Speaker 1: a platform of economic opening and reform. His bj B
Speaker 1: party scored one of the biggest ones ever and it
Speaker 1: was a pretty exciting moment. But his administration has come
Speaker 1: under a lot of fire for really not moving fast
Speaker 1: enough on these reforms. The federal budget, which is sold
Speaker 1: for release next week, offers the chance of a reset,
Speaker 1: a chance to align policy priorities with the vision that
Speaker 1: was sold for a more productive, a more dynamic, business
Speaker 1: friendly India. It's not an easy place to govern. Let's
Speaker 1: go back in time for a moment. The election of
Speaker 1: the Modi government was a very big deal. The whole
Speaker 1: series of front page stories in big American papers, this
Speaker 1: sense that the rest of India would become like Gudge right,
Speaker 1: that's the state north of Mumbai that Modi ran as
Speaker 1: Chief minister. Chief Minister is kind of like a governor
Speaker 1: in the US. India would be open for business, the
Speaker 1: shackles would be freed, well, not so fast. Unlike China,
Speaker 1: Modi has to contend with two chambers of Parliament, twenty
Speaker 1: nine state governments, and a fiercely independent judiciary that thinks
Speaker 1: nothing of tossing out key government decisions such as who
Speaker 1: to cell phone licenses get awarded to So, Dan, are
Speaker 1: you saying that there's maybe too much democracy in India?
Speaker 1: I would never want to say there's too much democracy anywhere,
Speaker 1: but there are some things holding the country back. Joining
Speaker 1: us from our bureau in New Delhi is Uni Krishnan,
Speaker 1: who covers economics and government in India. Uni Hi Hi
Speaker 1: Dan Hiarchy, Hey, when you welcome to the show. I've
Speaker 1: heard that you've met Prime Minister Modi uh and that
Speaker 1: you've reported on his administration since its beginning in fourteen,
Speaker 1: So you know from what you see over there, has
Speaker 1: he failed relative to the expectations that were placed on him.
Speaker 1: What do you think it's been. It's been a mixed
Speaker 1: recordom and it's Bunster Moody has had a few hits
Speaker 1: and some misses. Um. I mean, if you look at
Speaker 1: the global economic map, where else in the world will
Speaker 1: you find economy that's expanding over seven percent and inflation
Speaker 1: that's moderating in a currency it's been largely stable apart
Speaker 1: from India. It's now the fastest growing economy in the world,
Speaker 1: even though relatively it's size and smaller compared to the
Speaker 1: United States or even China. But that's the good part
Speaker 1: now that's not so good. Parts so far has been
Speaker 1: the primister movie has had limited success in scrapping wasteful expenditure,
Speaker 1: something it promised when he got that historic mandate in
Speaker 1: elections in he also promised of um cutting back subsidies.
Speaker 1: These were like the large reforms that were supposed to
Speaker 1: reset the economy and put it on a on a
Speaker 1: faster growth path. He also promised scrapping leaky food distribution system. Now,
Speaker 1: remember all these are very unpopular decisions and traditionally in
Speaker 1: India governments can manage to do these things in their
Speaker 1: first few years in office, and that's what was what
Speaker 1: was expected from Prime Minister Moody because he had won
Speaker 1: the election on the development card. Now a lot of
Speaker 1: it hasn't happened. There's been something incremental step, but it's
Speaker 1: been a very slow movement. There's been There was a
Speaker 1: promise of a manistionwide sales tax that's been stuck in
Speaker 1: Parliament for over your now, so that those are the
Speaker 1: areas where he's underwhelmed. A lot of disruptive steps were expected,
Speaker 1: but what we've been witnessing over the past two years
Speaker 1: is actually incrementally changed. Ernie let's rewind the tape for
Speaker 1: two years. How did expectations get so high? And do
Speaker 1: they matter anyway? Is there a chance that when his
Speaker 1: term ends, people will look back and say some of
Speaker 1: these steps were nothing short of revolutionary. They just took
Speaker 1: a while to happen. And you know, watching the lamb
Speaker 1: sausage being made can be pretty painful, but ultimately it's
Speaker 1: the results you want to taste. And then that's part
Speaker 1: partly to whatever you said. You know, the steps step
Speaker 1: movie has been taking. He's putting a lot of money
Speaker 1: in building a highway network. He's upgrading airports, he's improving ports,
Speaker 1: basically putting a lot of money into infrastructure, creating capacity
Speaker 1: so that that's easier movement of people and goods, which
Speaker 1: is necessity for any modern, fast growing economy. He's also
Speaker 1: galganized bureaucracy, he's empowered state governments, and he's also generated
Speaker 1: a lot of money from telecom auctions and auctioning mining assets. Now,
Speaker 1: these are all steps which don't immediately in results. Um uh,
Speaker 1: you know, the consumer is going through a pain, but
Speaker 1: these are building blocks which will sustain high levels of
Speaker 1: growth in the coming years. So, like I said earlier,
Speaker 1: it's like incremental steps. There's no big bang happening here,
Speaker 1: but maybe um, five to seven years down the line,
Speaker 1: these measures that times to Marie's taking today will lead
Speaker 1: to a sustained high growth. So that's the situation on ground.
Speaker 1: So any houses played out economically, could you give us
Speaker 1: some numbers here? Yeah, So you have about growth which
Speaker 1: is about seven percent. The outlook for the next year
Speaker 1: is also, uh, the growth would be anywhere between seven
Speaker 1: to eight percent. A lot actually depends on, you know,
Speaker 1: the global external environment. So far, even though there's been
Speaker 1: a tremendous stream pain in the global economy, for India,
Speaker 1: it's actually worked to its advantage because India's a big
Speaker 1: energy inporting country and lower oil prices mean that you know,
Speaker 1: you you you spend less on oil and the input
Speaker 1: costs for for the manufacturing sector goes down. So in
Speaker 1: that sense, the growth outlook is quite positive in terms
Speaker 1: of seven percent pluss growth intension has been hovering around
Speaker 1: about five percent going forward. Governor argin Reserve Banks India
Speaker 1: governor Central Bank governor expects that it would be anywhere
Speaker 1: between about five and six percent. That's pretty manageable for
Speaker 1: a developing economy. Like India, which is going pretty fast,
Speaker 1: and and current account deficit. That's another major one for
Speaker 1: India because of the amount of imports that the economy
Speaker 1: takes and that's also been under control. And lastly, government
Speaker 1: spending in terms of fiscal deficit, you know, which which
Speaker 1: decides the ability for the government to borrow and also
Speaker 1: impacts bordering rates for the private sector. The fiscal deficit
Speaker 1: also has been under control and the government has been
Speaker 1: keeping a fairly tight cap on how it spends the money.
Speaker 1: So so far it's been the metrics in terms of
Speaker 1: actual numbers. All the macroeconomics indicators are suggesting that goth
Speaker 1: will be sustain and infliction will be under control. So
Speaker 1: now we're up to speed on the current scene in India.
Speaker 1: We'll come back and talk about what's getting in the
Speaker 1: way of India's continued economic rise, a peaceful one, even
Speaker 1: as one of its neighbors would say, First a word
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Speaker 1: for all investors. The biggest brand created in India, That's
Speaker 1: what Prime Minister Modi has called his campaign to make
Speaker 1: India the next global manufacturing hub. Billboards from Germany to
Speaker 1: California implore make in India, Ernie. How's that campaign going? So,
Speaker 1: simply put, it's a campaign called make in India. Wherein
Speaker 1: what time Mr Movies trying to do is to create
Speaker 1: a robust manufacturing sector so that there are enough jobs
Speaker 1: for the youth. Remember, India has got a huge demographic dividend,
Speaker 1: with nearly half of its population below the age of
Speaker 1: twenty five million workers joining the workforce every month, so
Speaker 1: um attracting factory jobs is key to Prime minister modes
Speaker 1: growth plans. He's pushing to boost the share of manufacturing
Speaker 1: in the economy to a quarter. It's about eighteen percent
Speaker 1: now and he plans to put about hundred million people
Speaker 1: to work in brand new factories by twenty twenty two.
Speaker 1: So he's been going around asking global investors to set
Speaker 1: up factories, especially in focus areas like automobiles, pharmaceuticals, engineering products,
Speaker 1: electronics and defense manufacturing. India is one of the biggest
Speaker 1: importer of defense equipment UM given its issues with the
Speaker 1: ables namely Pakistan in China. So pis movie has been
Speaker 1: trying to boost the manufacturing sector and it's about like
Speaker 1: a quarter of the economy is from manufacturing in twenty
Speaker 1: twenty two and create jobs for a hundred billion people
Speaker 1: by in another seven years. So when I'm wondering what
Speaker 1: did the successes of this campaign and maybe the shortcomings
Speaker 1: of this campaign to say about Prime Minister Moodies India,
Speaker 1: Actually it's a it's a mixed support card. You know,
Speaker 1: it isn't still a very easy place to open an
Speaker 1: enterprise and run a business, but things are improving ever
Speaker 1: since times too more they took part in two thousands fourteen.
Speaker 1: He's made it improve the India's ranking in the World Bank.
Speaker 1: It's jumped for places. In the last report that had
Speaker 1: come out, it's about at higher and third position. That
Speaker 1: isn't very impressive for a country that wants to attract
Speaker 1: a law of investment and to sort of become the
Speaker 1: globe manufacturing hub. But things are improving, it's not happening
Speaker 1: fast enough. The government has a role in in most
Speaker 1: force sets of business. Things do get very bureaucratic, especially
Speaker 1: with business. There's a lot of paperwork to deal with
Speaker 1: while opening up business. But Mr movie has done some
Speaker 1: sort of self certification. You need less of PaperWorks if
Speaker 1: there were five forms needed, so now he's consolidated into
Speaker 1: one form. So he's he's putting the building blocks. Investment
Speaker 1: growth overall remains subdued, but the sentiment in terms of
Speaker 1: India is a difficult place to do business. UM is
Speaker 1: improving in terms um of the fact that foreign direct
Speaker 1: investment has increased about twenty seven percent since May two
Speaker 1: tho forty, even prying Mr Moody came to power and
Speaker 1: all this at a time when global demand was slowing.
Speaker 1: So things are improving. People are getting attracted, but he
Speaker 1: needs to possibly step on the gas in terms of
Speaker 1: make it an easier place to do business and any
Speaker 1: what are some of the institutional factors, some of the
Speaker 1: demographic factors that a single person in the term of
Speaker 1: a single government, let alone the halfway point in the
Speaker 1: first term, that anyone would struggle to address. Strength of unions,
Speaker 1: this robust sense of ownership that state governments have over
Speaker 1: their own affairs. Talk a little about that. Like you
Speaker 1: said in your opening remarks, you know, it is a
Speaker 1: difficult place to government. It's a noisy democracy, and it's
Speaker 1: got a federal structure, and it's got a state structure
Speaker 1: that a lot of things that are an exclusive domain
Speaker 1: of the state governments where where you know, the federal
Speaker 1: government doesn't have much of a role. For example, you know,
Speaker 1: I sort of foreign investor. You come here and you
Speaker 1: say that you want to set up this billion dollars
Speaker 1: cup plant. Now planets to movie can direct you to
Speaker 1: a set of states where which you would be interested,
Speaker 1: or you can or the foreign investor can decide. But
Speaker 1: beyond that, getting you know, what's the connection, getting land,
Speaker 1: getting all other clearances, the investor has to go through
Speaker 1: the state government. Now it depends on how open is
Speaker 1: that state government in terms of accepting some of the demands.
Speaker 1: So that's where the problem is. You know, Prime Minister
Speaker 1: Movie can be pretty open to business, can you know,
Speaker 1: welcome global investors. But beyond point, it is in the
Speaker 1: domain of the state government to make it an easier
Speaker 1: place to do business for the sort of global investor.
Speaker 1: So ultimately the car maker has to rely on compassionate
Speaker 1: state government to help sort out things. Primes to Movie
Speaker 1: can intervene. But unlike while he was the Chief minister
Speaker 1: in Gujab, where things were much more in his control,
Speaker 1: as a prime minister, there are certain handicaps that he
Speaker 1: has to deal with. But having said that, things are
Speaker 1: improving because you know, states are now competing for investments.
Speaker 1: Prime Minister a Movie is a shiny example of being
Speaker 1: a successful chief minister who's made a career at the
Speaker 1: national level because he could exhibit that you know, growth
Speaker 1: leads to growth necessarily is not doesn't make you unpopular.
Speaker 1: If you give growth to people, if they have higher
Speaker 1: disposable income, there's a greater chance of them voting your
Speaker 1: back in power. So the days of handouts and subsidies
Speaker 1: are over. Various chief ministers realizing that if you government
Speaker 1: of state well if you attracked for investors, people are
Speaker 1: bound to vote you back. They're not no longer looking
Speaker 1: for handouts, looking for a better life for their children,
Speaker 1: higher disposable income. So and I guess this brings us
Speaker 1: to the budget, which I heard is presented next week.
Speaker 1: When Dan originally told me that he wanted to talk
Speaker 1: about India's budget, I groaned a little bit, you know,
Speaker 1: because the budget it sounds like such a pedestrian thing.
Speaker 1: But tell us how big of a deal is a
Speaker 1: budget in India and why is it's such a big
Speaker 1: deal unlike other countries. You know, the did is a
Speaker 1: flagship event in India's economic policy making calendar. It is
Speaker 1: not just an account statement where the government comes and
Speaker 1: says that this is how much they earned last year
Speaker 1: and the samad spent here. It's more, you know, a
Speaker 1: chance for the government to present its economic vision for
Speaker 1: the for the coming year. It's also used as a
Speaker 1: launch pad for government programs, sometimes to initiate structural reforms
Speaker 1: and in some cases announced populous measure especially ahead of elections.
Speaker 1: Remember in when you when India embraced free market reforms,
Speaker 1: it started with the budget announcement. So historically, the budget
Speaker 1: has been used by prime ministers slash political parties slash
Speaker 1: leaders to showcase their best programs. So in that sense,
Speaker 1: that's the reason why it's sort of a big deal
Speaker 1: in India. There's a lot of pomp and ceremony surrounding
Speaker 1: the budget in Australia as well. I guess this must
Speaker 1: be a British legacy for both countries. Yeah, exactly. And
Speaker 1: does the Finance Minister come out of the Treasury building
Speaker 1: with a red suitcase and get into the car and
Speaker 1: drive to Parliament amidst the flashing of cameras. Yeah, the
Speaker 1: same thing happens here as well. Then, for all this
Speaker 1: and for all the issues that we've raised in this podcast,
Speaker 1: the country must be doing something right. After all, growth
Speaker 1: was the highest in the G twenty last year. Of course.
Speaker 1: I mean there are a lot of things that the
Speaker 1: government has done and there are three parts to this,
Speaker 1: you know. The first one has been the dogged approach
Speaker 1: of both the government and the Central Bank to curb
Speaker 1: inflation and resist the temptation of opening po strings and spending.
Speaker 1: You know, there's this steered clear of any kind of
Speaker 1: fiscal stimulus, even though growth was recovering. The single focus
Speaker 1: was essentially controlled inflation and fiscal deficit. Inflation has been
Speaker 1: brought to about five percent from world close to double
Speaker 1: digits two years back. The other thing, the second part
Speaker 1: of this entire development is that time Mr Moody has
Speaker 1: opened bank accounts to the poor. Um. I remember a
Speaker 1: lot of people India are living in the villages there,
Speaker 1: you know, outside the formal banking system. So he's brought
Speaker 1: them in one, he's brought them in two um to
Speaker 1: give them better access to financial products. And also it
Speaker 1: helps him transfer subsidy payments directly into their bank accounts,
Speaker 1: thereby plugging leakages, cutting out middle men, bringing down corruption.
Speaker 1: So that's been that's been the second big area where
Speaker 1: things have been done and things have gone right for
Speaker 1: Prime Mr Moody. The third is he's taken steps to
Speaker 1: attract foreign investment. He's capitalized on the positive sentiment ever
Speaker 1: since he took office after that when the global financial
Speaker 1: investors were really looking forward to parme mister Moody getting power,
Speaker 1: and he's capitalized on it. He's open certain sectors. He's
Speaker 1: opened foreign direct investment for defense manufacturing. He's increased the
Speaker 1: limit or raised the gap on foreign investment in insurance
Speaker 1: sofa on the financial sector side. Also, he's taken a
Speaker 1: couple of measures. So that's the reason why all of
Speaker 1: this has come together and you live the kind of
Speaker 1: results at a time when most of India's appears in
Speaker 1: the emerging economies backet have actually fallen off the radar.
Speaker 1: You know, Aki Tori isn't here today, but she would
Speaker 1: have loved this conversation. Heck, she may even end up
Speaker 1: working in India. Well, I think she'd like it a
Speaker 1: lot um. As our listeners know, I'm doing a three
Speaker 1: month temporary transfer to Tokyo right now and I'm really
Speaker 1: loving every single minute of it, So I bet she'd
Speaker 1: love India too. Ernie, we can't thank you enough your insight.
Speaker 1: It's great to get the flavor on the ground. Thanks
Speaker 1: thanks Jackie, and thanks to all of you for sending
Speaker 1: to Bloomberg Benchmark. We're going to be back again next week.
Speaker 1: Until then, you can find us on the Bloomberg terminal
Speaker 1: and on Bloomberg dot com, as well as on iTunes,
Speaker 1: pocket Cast, Stitcher, and Google Play. And while you're there,
Speaker 1: please take a minute to rate and review the show.
Speaker 1: Some more people can find us and let us know
Speaker 1: what you thought of the show. Ernie, our colleague in
Speaker 1: India has a Twitter handle at unique. That's pretty unique.
Speaker 1: I'm at Daniel Moss d c Aki is Akio seven
Speaker 1: and let's not forget bound for India soon at Tory stillwell,
Speaker 1: see you next week. This episode was brought to you
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