You're listening to Asia Centric from Bloomberg Intelligence, the podcast that pulls back the curtain on global business so you can invest better across the Asia Pacific rim. I'm John Lee in Hong Kong.

You're listening to Asia Centric from Bloomberg Intelligence, the podcast that pulls back the curtain on global business so you can invest better across the Asia Pacific rim. I'm John Lee in Hong Kong.

And I'm Katehmitriyeva with Bloomberg News, also in Hong Kong. India has been a bright spot globally this year as the fastest growing large economy in the world, but second quarter data last week showed there are some cracks emerging.

And I'm Katehmitriyeva with Bloomberg News, also in Hong Kong. India has been a bright spot globally this year as the fastest growing large economy in the world, but second quarter data last week showed there are some cracks emerging.

The economy was broadly expected to slow later this year, and there are signs that it's already beginning as consumers and government spending pullback. While some economists were surprised by the lower than expected growth, at least one analyst has been bearish on the India story for a few years.

The economy was broadly expected to slow later this year, and there are signs that it's already beginning as consumers and government spending pullback. While some economists were surprised by the lower than expected growth, at least one analyst has been bearish on the India story for a few years.

Yes. Joining us this week is Miguel Chanko, Chief Emerging Asia Economist at Pantheon Macroeconomics. Welcome Miguel, Thanks.

Yes. Joining us this week is Miguel Chanko, Chief Emerging Asia Economist at Pantheon Macroeconomics. Welcome Miguel, Thanks.

Guys, thanks for having Megail.

Guys, thanks for having Megail.

You've been more critical than peers on India's economy for a few years now. Your outlook on GDP is the lowest among economists in our survey. Why is that? What leads you to that view.

You've been more critical than peers on India's economy for a few years now. Your outlook on GDP is the lowest among economists in our survey. Why is that? What leads you to that view.

I think one of the main reasons is sort of an overestimation of how fast India is really growing. So if you go back to the last FISCO year, for example, so India supposedly grew by eight point something percent, right if I were to ask you, so for example, I'm the questionnaire here in you two or the guests, if I were to ask you, how much of that eight percent actually came from private consumption? In you main growth engine? What percentage of proportion will you put to that eight percent?

I think one of the main reasons is sort of an overestimation of how fast India is really growing. So if you go back to the last FISCO year, for example, so India supposedly grew by eight point something percent, right if I were to ask you, so for example, I'm the questionnaire here in you two or the guests, if I were to ask you, how much of that eight percent actually came from private consumption? In you main growth engine? What percentage of proportion will you put to that eight percent?

At over half.

At over half.

Less than thirty percent? Okay, So over half of what contributed to India's supposedly strong eight percent growth rate last year came from a component in GDP called statistical discrepancies. So that's essentially the difference between the GDP by expenditure approach versus the GDP by industry calculation. So on the expenditure side, this unaccounted residual accounted for fifty two percent of growth last year. For me, looking at the numbers, that's not something tangible I can hang on to India's growth story. You know, I'm trying to forecast different avenues of growth consumption, government spending, investment, exports, and import forecasting statistical discopmancies is not is a false errand and something that's not really reflective of real economic activity on the ground. So this huge boost from this sort of statistical noise essentially flattered much of growth story last risk of year, and it masked a lot of the weakness underneath, one of them being private consumption, which grew about four percent less BISK of year. No one wants to talk about this, but four percent private suffering growth in India is the weakest it's been in a decade plus if we sort of exclude the COVID year. So you know, the slowdown in India that we're seeing now is really because this boost, this lift and flattery from statistical discrepancies is now starting to come out of the headline GDP growth numbers, and that's sort of revealing an underlying weakness.

Less than thirty percent? Okay, So over half of what contributed to India's supposedly strong eight percent growth rate last year came from a component in GDP called statistical discrepancies. So that's essentially the difference between the GDP by expenditure approach versus the GDP by industry calculation. So on the expenditure side, this unaccounted residual accounted for fifty two percent of growth last year. For me, looking at the numbers, that's not something tangible I can hang on to India's growth story. You know, I'm trying to forecast different avenues of growth consumption, government spending, investment, exports, and import forecasting statistical discopmancies is not is a false errand and something that's not really reflective of real economic activity on the ground. So this huge boost from this sort of statistical noise essentially flattered much of growth story last risk of year, and it masked a lot of the weakness underneath, one of them being private consumption, which grew about four percent less BISK of year. No one wants to talk about this, but four percent private suffering growth in India is the weakest it's been in a decade plus if we sort of exclude the COVID year. So you know, the slowdown in India that we're seeing now is really because this boost, this lift and flattery from statistical discrepancies is now starting to come out of the headline GDP growth numbers, and that's sort of revealing an underlying weakness.

Mcguirl, Could you flesh out more of this statistical discrepancy? Like what is it? Can you possibly explain it in layman terms?

Mcguirl, Could you flesh out more of this statistical discrepancy? Like what is it? Can you possibly explain it in layman terms?

Yeah, I mean I wish I could, but officially it's like I said, it's a difference between if you measured GDP by expenditure, so that's GDP you know, looking at components like private consumption, investment, government spending. That's one measure of GDP. Right, The measure of GDP is GDP by industry, So if you look at agriculture, manufacturing services, that's so that's the output side. So in India is some a quirky national account system. There is normally a small difference between the two. Normally they match, but in the last fiscal year there was quite a big difference. And this difference is represented as statistical discrepancies in the expenditure approach, and this accounted for, like I said, as fifty two percent of the growth UH in the last VESCO year, which again, like I said, it's nothing tangible that we can hold on too. So if you were, you know, banking on eight percent growth when fifty percent of that was driven by this noise in the GDP numbers, then yes, call me skeptical, call me bearersh I'm just looking at what I can actually hang my hat on, which is, you know, the concrete aspects of GDP by expenditure, consumption, investment, and a lot of this were weak last VESCAL year and are still somewhat relatively subbuted this fistical year at least in Q one.

Yeah, I mean I wish I could, but officially it's like I said, it's a difference between if you measured GDP by expenditure, so that's GDP you know, looking at components like private consumption, investment, government spending. That's one measure of GDP. Right, The measure of GDP is GDP by industry, So if you look at agriculture, manufacturing services, that's so that's the output side. So in India is some a quirky national account system. There is normally a small difference between the two. Normally they match, but in the last fiscal year there was quite a big difference. And this difference is represented as statistical discrepancies in the expenditure approach, and this accounted for, like I said, as fifty two percent of the growth UH in the last VESCO year, which again, like I said, it's nothing tangible that we can hold on too. So if you were, you know, banking on eight percent growth when fifty percent of that was driven by this noise in the GDP numbers, then yes, call me skeptical, call me bearersh I'm just looking at what I can actually hang my hat on, which is, you know, the concrete aspects of GDP by expenditure, consumption, investment, and a lot of this were weak last VESCAL year and are still somewhat relatively subbuted this fistical year at least in Q one.

Has that been always the case where there's sort of the statistical discrepancies coming in, or was it just the case that last year was just the biggest we've seen.

Has that been always the case where there's sort of the statistical discrepancies coming in, or was it just the case that last year was just the biggest we've seen.

It's one of the biggest sort of discrepancies that I've seen. At least if you go back forty years before COVID, this component has gone down to share a GDP, which is a good thing because you know, measuring economic activity has become a bit more accurate over the course of history of a course of that time. But since COVID, there's been like an increase in this component's impact on GDP, at least headline GP since twenty twenty. So we're seeing this somewhat worrying trend. Maybe there's changes in the structure of being this economy that are not being captured or what have you. But yeah, at least in terms of the growth story, last year's statistical discrepancy contribution was one of the highest I've seen in many years.

It's one of the biggest sort of discrepancies that I've seen. At least if you go back forty years before COVID, this component has gone down to share a GDP, which is a good thing because you know, measuring economic activity has become a bit more accurate over the course of history of a course of that time. But since COVID, there's been like an increase in this component's impact on GDP, at least headline GP since twenty twenty. So we're seeing this somewhat worrying trend. Maybe there's changes in the structure of being this economy that are not being captured or what have you. But yeah, at least in terms of the growth story, last year's statistical discrepancy contribution was one of the highest I've seen in many years.

Does the gross value add get rid of that? I know there's two readings. India is an interesting economy. We don't just have GDP, we also have GVA. Does that get rid of some of that noise because economists do typically see the GVA as a better reading because it strips out the effects of transfer payments for taxes and subsidies, and that was actually above forecasts for Q two for example.

Does the gross value add get rid of that? I know there's two readings. India is an interesting economy. We don't just have GDP, we also have GVA. Does that get rid of some of that noise because economists do typically see the GVA as a better reading because it strips out the effects of transfer payments for taxes and subsidies, and that was actually above forecasts for Q two for example.

Yeah, it does no wig, but even within that measure that the transfer and subsidies bits contributed quite significantly last year's growth story. Again, what does that mean for economic activity? Minimal? So if you look at what's tangible we can actually forecast and compare against monthly high frequency numbers. It was tangible that for me has been disappointing about INDUS growth stories.

Yeah, it does no wig, but even within that measure that the transfer and subsidies bits contributed quite significantly last year's growth story. Again, what does that mean for economic activity? Minimal? So if you look at what's tangible we can actually forecast and compare against monthly high frequency numbers. It was tangible that for me has been disappointing about INDUS growth stories.

Up.

Up.

Yes I've been very snoy but because really I've just tried to focus on what actually concrete that's happening in the economy based on India's national accounts, I'm not trying to These numbers are there for everyone to see. And it's quite funny like sort of maybe six or nine months ago when when this whole issue is that this while discrepancies became something that even the Chief Economic Advisor of India had to address at one point because it was so egregious that lift that that of the headline that he had to come out saying this is just sort of you know how India's GP growth headline is calculated, and it's a component that meaner birds and ebbs and flow, so there is a recognition that it's imperfect. But yeah, obviously the mainstream story is still how India is one of the main performers in the world, and that sort of seems to grab the most media attentionet and rightly so. But for me who has to look into the detail detail has been worrying in that respect.

Yes I've been very snoy but because really I've just tried to focus on what actually concrete that's happening in the economy based on India's national accounts, I'm not trying to These numbers are there for everyone to see. And it's quite funny like sort of maybe six or nine months ago when when this whole issue is that this while discrepancies became something that even the Chief Economic Advisor of India had to address at one point because it was so egregious that lift that that of the headline that he had to come out saying this is just sort of you know how India's GP growth headline is calculated, and it's a component that meaner birds and ebbs and flow, so there is a recognition that it's imperfect. But yeah, obviously the mainstream story is still how India is one of the main performers in the world, and that sort of seems to grab the most media attentionet and rightly so. But for me who has to look into the detail detail has been worrying in that respect.

Asia Centric is produced by Bloomberg Intelligence, where more than five hundred experienced analysts and strategists work around the clock to bring you timely, world class research. Our coverage spans two hundred market industries, currencies, commodities and industries, as well as over two thousand equities and credits. If you like what you hear, don't forget to subscribe and chair. A lot of people who look at India are used to this eight percent growth. Do you think it's been overstated and what's the real underlying growth in your view?

Asia Centric is produced by Bloomberg Intelligence, where more than five hundred experienced analysts and strategists work around the clock to bring you timely, world class research. Our coverage spans two hundred market industries, currencies, commodities and industries, as well as over two thousand equities and credits. If you like what you hear, don't forget to subscribe and chair. A lot of people who look at India are used to this eight percent growth. Do you think it's been overstated and what's the real underlying growth in your view?

I think underlying growth over the last eighteen months or so it's been probably around six percent, and we're starting to see someone that convergence now right with that's left from systems coming out of the picture. Like I said, private consumption in the last fiscally was four percent, which is one of the weakest out turns annual alternasi've seen in years, stripping out the COVID hits. So underlying momentum is far below the sort of seven to eight percent rates we've seen before the most recent GTP numbers came out because the components of GDP that are like said, tangible have been a lot weaker than the headline suggests.

I think underlying growth over the last eighteen months or so it's been probably around six percent, and we're starting to see someone that convergence now right with that's left from systems coming out of the picture. Like I said, private consumption in the last fiscally was four percent, which is one of the weakest out turns annual alternasi've seen in years, stripping out the COVID hits. So underlying momentum is far below the sort of seven to eight percent rates we've seen before the most recent GTP numbers came out because the components of GDP that are like said, tangible have been a lot weaker than the headline suggests.

Can we walk through those components, Like when you're looking at the accounts for India, if we're looking at consumer spending, a business investment FDI, what are you seeing in those sectors?

Can we walk through those components, Like when you're looking at the accounts for India, if we're looking at consumer spending, a business investment FDI, what are you seeing in those sectors?

I think certainly one of the bright spots over the last few years or so has been investment. You know, there's been a real strong momentum in that since COVID, and even though there's been somewhat of a moderation over the last few quarters, investment still is the main outperformer. Looking at the domestic picture, obviously government spending entered somewhat of a lull because the election, and like I said, prodic consumption has performed historically weak. That aside, though the more recent print of seven percent was quite respectable, and that sort of matches with some of the consumer services that we're seeing in the RPI, where spending intentions are starting to take back up again again. If you were sort of rank where much of the real growth and momentum has been coming from in India, domestically, at least, i'd say investment has been the star performer, followed by in close second and third sort of disappointing government spending and private consumption numbers. In terms of the external side, exports have had a fairly good run since since COVID, and that's true for a lot of emerging markets in Asia, maybe not so much China, but yeah, exports have also been quite punchy, if somewhat rocky over the that speak horders, but still you know, sort of setting record highs even after adjusting for seasonal noise. So exports has in quite a strong component of the Indian growth story. And if you delve more deeply into that as well, Indian exports of services have really boomed since COVID, and it's probably one sort of underreported aspect of the numbers we tend to as as economists as reporters focus on what's you know, reported on a regular basis, and that's mostly sometimes merchandise trade numbers. But Indian services exports have really grown substantially over the last few years and are now starting to compete with merchandise exports in terms of size, which is great because that's a fast growing sector. You know, in the IT and BPO side, that can really help not just with things like the root pea stability, but also in general trans of econome activity. It's an industry for the future. Sure what is included in.

I think certainly one of the bright spots over the last few years or so has been investment. You know, there's been a real strong momentum in that since COVID, and even though there's been somewhat of a moderation over the last few quarters, investment still is the main outperformer. Looking at the domestic picture, obviously government spending entered somewhat of a lull because the election, and like I said, prodic consumption has performed historically weak. That aside, though the more recent print of seven percent was quite respectable, and that sort of matches with some of the consumer services that we're seeing in the RPI, where spending intentions are starting to take back up again again. If you were sort of rank where much of the real growth and momentum has been coming from in India, domestically, at least, i'd say investment has been the star performer, followed by in close second and third sort of disappointing government spending and private consumption numbers. In terms of the external side, exports have had a fairly good run since since COVID, and that's true for a lot of emerging markets in Asia, maybe not so much China, but yeah, exports have also been quite punchy, if somewhat rocky over the that speak horders, but still you know, sort of setting record highs even after adjusting for seasonal noise. So exports has in quite a strong component of the Indian growth story. And if you delve more deeply into that as well, Indian exports of services have really boomed since COVID, and it's probably one sort of underreported aspect of the numbers we tend to as as economists as reporters focus on what's you know, reported on a regular basis, and that's mostly sometimes merchandise trade numbers. But Indian services exports have really grown substantially over the last few years and are now starting to compete with merchandise exports in terms of size, which is great because that's a fast growing sector. You know, in the IT and BPO side, that can really help not just with things like the root pea stability, but also in general trans of econome activity. It's an industry for the future. Sure what is included in.

That you said it and what other industries are leading within that? With services exports.

That you said it and what other industries are leading within that? With services exports.

VPO, so business process outsourcing say IT services and BPO services are typically what account for most of indist service exports. Similar sort of with the Philippines in that space where IT services and BPO services because of the English language skills that sort of trently globally from both Indian and Philippines that they've been sort of the main players in Asia in this space.

VPO, so business process outsourcing say IT services and BPO services are typically what account for most of indist service exports. Similar sort of with the Philippines in that space where IT services and BPO services because of the English language skills that sort of trently globally from both Indian and Philippines that they've been sort of the main players in Asia in this space.

Is that what Infosys does Companies like.

Is that what Infosys does Companies like.

That, Yeah, essentially, but are far more diversified than that for sure, But yeah, that's one of their business areas is that.

That, Yeah, essentially, but are far more diversified than that for sure, But yeah, that's one of their business areas is that.

Potentially threatened by artificial intelligence? Are we seeing any potential risk there, like this one bright spot or one of the bright spots in the economy. Is there a risk of, for example, these call centers no longer requiring people being taken over by bots or chats. What are your thoughts.

Potentially threatened by artificial intelligence? Are we seeing any potential risk there, like this one bright spot or one of the bright spots in the economy. Is there a risk of, for example, these call centers no longer requiring people being taken over by bots or chats. What are your thoughts.

I'm no expert on AI, but I could definitely see that happening, especially at the early stage of any consumer facing interaction, right where you kind of filter out what's urgent and what can be resolved by simple queries. I suspect that we could see some replacement there, especially with smaller simple customers service questions. But yeah, we've get to see it, at least we get to see it in the numbers in terms of service exports. But yeah, sure, sort of three five years down the line, I wouldn't be surprised if there's some job lost there because of AI.

I'm no expert on AI, but I could definitely see that happening, especially at the early stage of any consumer facing interaction, right where you kind of filter out what's urgent and what can be resolved by simple queries. I suspect that we could see some replacement there, especially with smaller simple customers service questions. But yeah, we've get to see it, at least we get to see it in the numbers in terms of service exports. But yeah, sure, sort of three five years down the line, I wouldn't be surprised if there's some job lost there because of AI.

Do you expect GDP growth to slow in the coming quarters ahead? Especially you sort of mentioned the consumer demand, how it's waning in factories are slowing. What are the signs right now in the data and the real economy.

Do you expect GDP growth to slow in the coming quarters ahead? Especially you sort of mentioned the consumer demand, how it's waning in factories are slowing. What are the signs right now in the data and the real economy.

Yeah, I definitely expect to see GDP growth that continue slowing. We have forecasts of around the high six percent over the next few quarters and sort of turning down to the low six early next year and high fives late twenty twenty five. So yes, essentially I expect consumer demander main fairly sluggish. Yes, we had a good growth print for the most recent report, but consumers are still very much under pressure in the economy because I feel look at the state of their household balance sheets is still very much under pressure and much of the minimum moment we've seen in consumption has been driven by debts, which I don't think is sustainable. There was a huge increase in households borrowing sort of during the post COVID reopening period, and we're now starting to see this rollover quite sharply investment. Yes, again, as I mentioned previously, it has been one of the strong points of the India's economy, but I don't really expect us to continue, especially in an environment where monetary policy is likely to remain quite tight. So we've sort of started to see now the in terms of corporate borrowing, it hasn't been as strong as as consumer debt, and I expect some of the momentum that's left in corporate borrowing to start coming down as well as as the RBI's industry has from twenty two to twenty twenty three start to filter through more to the real economy. So yes, in terms of private domestic land, which is what you know been broken down to that. It's that's consumption and investment, the main, real, big parts of Indias economy. I expect these two main areas to cool over the next few years. I'm not expecting a crash. Don't get me wrong, right, I am bearish on India, but it's not like I'm expecting it to be a doomsday scenario. We're in a cyclical slowdown and technically these two things will get affected by type Monte policy type fiscal policy or Titanic fiscal policy, and there's no escaping that.

Yeah, I definitely expect to see GDP growth that continue slowing. We have forecasts of around the high six percent over the next few quarters and sort of turning down to the low six early next year and high fives late twenty twenty five. So yes, essentially I expect consumer demander main fairly sluggish. Yes, we had a good growth print for the most recent report, but consumers are still very much under pressure in the economy because I feel look at the state of their household balance sheets is still very much under pressure and much of the minimum moment we've seen in consumption has been driven by debts, which I don't think is sustainable. There was a huge increase in households borrowing sort of during the post COVID reopening period, and we're now starting to see this rollover quite sharply investment. Yes, again, as I mentioned previously, it has been one of the strong points of the India's economy, but I don't really expect us to continue, especially in an environment where monetary policy is likely to remain quite tight. So we've sort of started to see now the in terms of corporate borrowing, it hasn't been as strong as as consumer debt, and I expect some of the momentum that's left in corporate borrowing to start coming down as well as as the RBI's industry has from twenty two to twenty twenty three start to filter through more to the real economy. So yes, in terms of private domestic land, which is what you know been broken down to that. It's that's consumption and investment, the main, real, big parts of Indias economy. I expect these two main areas to cool over the next few years. I'm not expecting a crash. Don't get me wrong, right, I am bearish on India, but it's not like I'm expecting it to be a doomsday scenario. We're in a cyclical slowdown and technically these two things will get affected by type Monte policy type fiscal policy or Titanic fiscal policy, and there's no escaping that.

I'm curious how much pushback do you get from clients or internally on this view.

I'm curious how much pushback do you get from clients or internally on this view.

Quite a bit, because no one wants to mess with India as the drawling of the em side, right, and there's a lot of money now the stark market has gone gangbusters, and obviously I'm up against that narrative. A lot of people tend to lose if I'm right, you know, so I don't mind it that. I don't mind that argument. Normally, all I have to do is point them to the actual statistics. And like I said, fifty two percent of growth last FASCO year was from patistical disturpancies. If you want to bank on that, that's up to you.

Quite a bit, because no one wants to mess with India as the drawling of the em side, right, and there's a lot of money now the stark market has gone gangbusters, and obviously I'm up against that narrative. A lot of people tend to lose if I'm right, you know, so I don't mind it that. I don't mind that argument. Normally, all I have to do is point them to the actual statistics. And like I said, fifty two percent of growth last FASCO year was from patistical disturpancies. If you want to bank on that, that's up to you.

I don't, yeah, because like, if India grows at the low six percent level, look, it's still okay compared to any other country. But there's such high exp for India.

I don't, yeah, because like, if India grows at the low six percent level, look, it's still okay compared to any other country. But there's such high exp for India.

Yes they are, And I'm still really bullish long term structurally about Indian growth story. So like I said, typically, yes I am on downbeach side, but structurally, India has a lot going for it as compared to most em countries. You know, it's it's demographic dividend story is still very much alive and kicking. There's so much potential for labor to move. So forget you know, the increase in the workforce over the next few years. The workforce now, and there's so much untaped potential there because a lot of them are still engaged in agriculture based on the best estimates, a lot of that can still move to manufacturing services where you know, higher productive areas I'm still very bullish about the structural story of India being a democracy more stable long term. Yes, it's MESSI but it's more stable long term. And you know, high saving, straight high investment rates historically is still very much a factor now that's going for it. So yeah, yes, I am bullish long term. Structurally the story is still very solid. I'm not denying that. But tyclically, I think people are sort of underestimating the scope of the sharpness of technical slow down over these next few years.

Yes they are, And I'm still really bullish long term structurally about Indian growth story. So like I said, typically, yes I am on downbeach side, but structurally, India has a lot going for it as compared to most em countries. You know, it's it's demographic dividend story is still very much alive and kicking. There's so much potential for labor to move. So forget you know, the increase in the workforce over the next few years. The workforce now, and there's so much untaped potential there because a lot of them are still engaged in agriculture based on the best estimates, a lot of that can still move to manufacturing services where you know, higher productive areas I'm still very bullish about the structural story of India being a democracy more stable long term. Yes, it's MESSI but it's more stable long term. And you know, high saving, straight high investment rates historically is still very much a factor now that's going for it. So yeah, yes, I am bullish long term. Structurally the story is still very solid. I'm not denying that. But tyclically, I think people are sort of underestimating the scope of the sharpness of technical slow down over these next few years.

What does that mean more broadly for competition with China? For example, We've seen this narrative play out. China's economy is structurally slowing, I think, faster than a lot of economists had expected. We're not seeing any signs of increased fiscal spending to boost that or change that picture. And India is also now slowing as well. Does this sort of narrow the gap maybe a little bit between those two countries, Yeah.

What does that mean more broadly for competition with China? For example, We've seen this narrative play out. China's economy is structurally slowing, I think, faster than a lot of economists had expected. We're not seeing any signs of increased fiscal spending to boost that or change that picture. And India is also now slowing as well. Does this sort of narrow the gap maybe a little bit between those two countries, Yeah.

A little bit, but you kind of have a squint to see it. I guess the difference is in scale, right, So China is a seventeen point something jillion dollar economy, India is three point five at least last year, and a seventeen point five trillion dollar economy growing at five percent versus a three point five trillion dollar economy at seven percent, there's still no match to that. So even even the Chinese headline growth is lowered, I looked at the numbers on this yesterday. Roughly speaking, in real terms, China's growth is producing a new Thailand and Philippines every year. In real terms, India's growth Indians growth, Yes, it's at a higher seven percent, save a seven eight percent, but from a much lower base of a three point five trillion to ole economy isn't even producing a whole Vietnam. So if you look at that in those terms of real you know, dollar output in fishing and justine terms, how much these two economists are growing, all Chinese is adding to the world economy four times more than what India is just because of scale. So yes, there is some ketchup there, but again, like I said, you have to squint to see it, and it'll probably be retired by then. When when when in India actually does ketchup? Because it's going to take a long time and the scale difference is just so vast that yes, there's ketchup, But it's it's minimal.

A little bit, but you kind of have a squint to see it. I guess the difference is in scale, right, So China is a seventeen point something jillion dollar economy, India is three point five at least last year, and a seventeen point five trillion dollar economy growing at five percent versus a three point five trillion dollar economy at seven percent, there's still no match to that. So even even the Chinese headline growth is lowered, I looked at the numbers on this yesterday. Roughly speaking, in real terms, China's growth is producing a new Thailand and Philippines every year. In real terms, India's growth Indians growth, Yes, it's at a higher seven percent, save a seven eight percent, but from a much lower base of a three point five trillion to ole economy isn't even producing a whole Vietnam. So if you look at that in those terms of real you know, dollar output in fishing and justine terms, how much these two economists are growing, all Chinese is adding to the world economy four times more than what India is just because of scale. So yes, there is some ketchup there, but again, like I said, you have to squint to see it, and it'll probably be retired by then. When when when in India actually does ketchup? Because it's going to take a long time and the scale difference is just so vast that yes, there's ketchup, But it's it's minimal.

Go just to further discuss this point in the relationship with China, a lot of people talk about China plus one and how India is a big beneficiary, and we've seen companies like Apple slow down their production in China and produce more in India. Are we starting to see these come through in the numbers like the economic GDP numbers.

Go just to further discuss this point in the relationship with China, a lot of people talk about China plus one and how India is a big beneficiary, and we've seen companies like Apple slow down their production in China and produce more in India. Are we starting to see these come through in the numbers like the economic GDP numbers.

It's hard to say, because I mean, yes, yes, I'm aware of that trend, and it does benefit India sectorally at some level. But if you look at manufacturing as a share of GDP and yeah, it's been fairly constant around seventeen percent over the last few years. So if I was to see a material boost in that story of you know, China plus one benefiting the likes of India, then I I'd really want to see shares of manufacturing, shares of export merchandise export grow as a percentage of the economy relative to where they were before. But I mean, in this is just one of the main beneficiaries of this sort of diversification away from China. Most of this is still largely benefiting countries in Asian so you know, Vietnams for example, prime beneficiary of the Chinnel plus one story. I'd say what's sort of underappreciated on the India side is that there are a lot of reasons why companies are hesitating to invest more in India in this space. So the labor law still remain very strict. As I mentioned previously, a lot of the workforce is still tied up in agriculture and a lot of that constraint is policy based, right. So for example, India has a very well known minimum support system for agricultural prices which basically guarantee farmers you know who plant rice and wheat and what have you, guaranteed income un their produce. Why would someone who's forming, who has this risable for lack of a better term, take the risk of moving into a different sector if they have a guaranteed income, because the government in India really supports the agricultural sector to that degree. So, yes, there is potential for India to be a bigger player in global trade and manufacturing because of the Chinnel plus one story, but there are a lot of policy reasons why India probably won't read the benefit as fast as say others like Vietnam or in Southeast Asia.

It's hard to say, because I mean, yes, yes, I'm aware of that trend, and it does benefit India sectorally at some level. But if you look at manufacturing as a share of GDP and yeah, it's been fairly constant around seventeen percent over the last few years. So if I was to see a material boost in that story of you know, China plus one benefiting the likes of India, then I I'd really want to see shares of manufacturing, shares of export merchandise export grow as a percentage of the economy relative to where they were before. But I mean, in this is just one of the main beneficiaries of this sort of diversification away from China. Most of this is still largely benefiting countries in Asian so you know, Vietnams for example, prime beneficiary of the Chinnel plus one story. I'd say what's sort of underappreciated on the India side is that there are a lot of reasons why companies are hesitating to invest more in India in this space. So the labor law still remain very strict. As I mentioned previously, a lot of the workforce is still tied up in agriculture and a lot of that constraint is policy based, right. So for example, India has a very well known minimum support system for agricultural prices which basically guarantee farmers you know who plant rice and wheat and what have you, guaranteed income un their produce. Why would someone who's forming, who has this risable for lack of a better term, take the risk of moving into a different sector if they have a guaranteed income, because the government in India really supports the agricultural sector to that degree. So, yes, there is potential for India to be a bigger player in global trade and manufacturing because of the Chinnel plus one story, but there are a lot of policy reasons why India probably won't read the benefit as fast as say others like Vietnam or in Southeast Asia.

I want to ask about the implications for macro policy of slower economy, especially after the second quarter data missed even the central bank estimates. Do you see the RBI moving faster as a result of that? What are your expectations for when they'll start cutting rates?

I want to ask about the implications for macro policy of slower economy, especially after the second quarter data missed even the central bank estimates. Do you see the RBI moving faster as a result of that? What are your expectations for when they'll start cutting rates?

I mean, i'd like to think so else my forecasts are wrong. So we were sort of above consensus in their respect that we expect fifty basis points of cuts from DARBA this year, whereas consensus at the moment last time I checked at least was twenty five bas points, so's not too far. But we're expecting the arbited to cut much sooner, so from the October meeting. And yes, i'd like to think that because Q two from the physically your perspective, Q one missed the RBI's seven point one or seven point two forecasts, that they'll start looking more into supporting growth. But from what I read about what the governor said a few days ago, they already have a ready mid excuse for y Q one missed, right, so they're blaming the election for it. It sounds like there's still no real appetite in the RBI to eat monetary policy anytime soon. But I think essentially the RBA has been behind the curve in terms of easing because we've had core inflation now that that's been historically low in India for a number of months, and that's really what no RB should be focusing on that because that's where the headline wage will eventually converge and follow going forward. So yes, I'd like to think that we'll see some easing in the immediate future in terms of the RIIS policy, But it sounds like, at least from the most recent rhetoric from the governor, that they've got ready mid excuse why not? Why why do stand pat at least in the next meeting?

I mean, i'd like to think so else my forecasts are wrong. So we were sort of above consensus in their respect that we expect fifty basis points of cuts from DARBA this year, whereas consensus at the moment last time I checked at least was twenty five bas points, so's not too far. But we're expecting the arbited to cut much sooner, so from the October meeting. And yes, i'd like to think that because Q two from the physically your perspective, Q one missed the RBI's seven point one or seven point two forecasts, that they'll start looking more into supporting growth. But from what I read about what the governor said a few days ago, they already have a ready mid excuse for y Q one missed, right, so they're blaming the election for it. It sounds like there's still no real appetite in the RBI to eat monetary policy anytime soon. But I think essentially the RBA has been behind the curve in terms of easing because we've had core inflation now that that's been historically low in India for a number of months, and that's really what no RB should be focusing on that because that's where the headline wage will eventually converge and follow going forward. So yes, I'd like to think that we'll see some easing in the immediate future in terms of the RIIS policy, But it sounds like, at least from the most recent rhetoric from the governor, that they've got ready mid excuse why not? Why why do stand pat at least in the next meeting?

Why didn't inflation take hold in India as much as in other countries, even neighboring countries.

Why didn't inflation take hold in India as much as in other countries, even neighboring countries.

Well, much of why India sort of shielded from twenty twenty three is because there's been an implicit fix on prices in India. So a lot of the all retail side to pump prices and stuff is still very much managed by huge state owned companies. And yes, India the government itself won't say that, you know, we've held prices pretty much frozen since the invasion of Ukraine two years ago. But that's basically what's happening, what's been happening. So India never really felt this huge jump in energy prices the same way a lot of economies in the EM space did. So that's one big difference. Secondly, India has also been one of the main beneficiaries quote unquote to say of the scarcity and resource So India blocked wheat if you go back two years ago, India blocked wheat exports to help the in domestic in fission situation. That at the expense of inflation elsewhere. Of course, same thing with rice last year. You know, India has been a bit more protectionist on the agri side, which has helped to manage the domestic mastecture. But like I said, at the expense of you know, higher inflation elsewhere where, other countries' injuries and our net reed borders of these commodities.

Well, much of why India sort of shielded from twenty twenty three is because there's been an implicit fix on prices in India. So a lot of the all retail side to pump prices and stuff is still very much managed by huge state owned companies. And yes, India the government itself won't say that, you know, we've held prices pretty much frozen since the invasion of Ukraine two years ago. But that's basically what's happening, what's been happening. So India never really felt this huge jump in energy prices the same way a lot of economies in the EM space did. So that's one big difference. Secondly, India has also been one of the main beneficiaries quote unquote to say of the scarcity and resource So India blocked wheat if you go back two years ago, India blocked wheat exports to help the in domestic in fission situation. That at the expense of inflation elsewhere. Of course, same thing with rice last year. You know, India has been a bit more protectionist on the agri side, which has helped to manage the domestic mastecture. But like I said, at the expense of you know, higher inflation elsewhere where, other countries' injuries and our net reed borders of these commodities.

That could be a whole other conversation fiscal policy, protectionist policy versus monetary policy, and controlling inflation.

That could be a whole other conversation fiscal policy, protectionist policy versus monetary policy, and controlling inflation.

Absolutely, it's been an educational discussion on India the way it accounts for its GDP and potential cyclical slowdown going forward. Thanks Miguel for coming on the show.

Absolutely, it's been an educational discussion on India the way it accounts for its GDP and potential cyclical slowdown going forward. Thanks Miguel for coming on the show.

Thank you very much guys for having me. It's been a pleasure.

Thank you very much guys for having me. It's been a pleasure.

I'm John Lee in Hong Kong.

I'm John Lee in Hong Kong.

I'm Katadmitriyeva, also in Hong Kong.

I'm Katadmitriyeva, also in Hong Kong.

This podcast was produced by Clara Chen and you've been listening to the Asia Centric podcast

This podcast was produced by Clara Chen and you've been listening to the Asia Centric podcast