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