"Analyzing Global and Indian Inflation Trends and Growth Numbers: A Discussion with Pranjul Bhandari" | NDTV Profit
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00:00 [MUSIC PLAYING]
00:03 On Talking Point today, the case for a chat.
00:13 Well, with the guests that we have,
00:16 and one of my favorite economists,
00:18 we have to talk about what the recency of print,
00:22 both on inflation globally and in India,
00:25 as well as growth numbers both globally in India,
00:27 hold in store.
00:28 Of course, yesterday's news around Indian bonds,
00:33 also including the Bloomberg bond index from 2025,
00:37 Jan 2025, also make their way into the conversation today.
00:41 Our guest is Pranjal Bhandari, Chief India and Indonesia
00:44 Economist at HSBC.
00:46 Pranjal, great having you.
00:47 Thanks so much for joining in.
00:48 And in advance to you and your colleagues at HSBC,
00:51 a very happy Women's Day.
00:53 Thank you very much.
00:54 Always lovely to be on your channel.
00:56 Yep.
00:56 Great, always lovely to have you.
00:58 Pranjal, I'm starting off with the worrying signs, though.
01:01 While the whole risk asset community was watching out
01:06 for when does the commentary and the actual action around rates
01:11 in the US happen, the recency in prints across core CPI
01:15 or otherwise in the US isn't very pleasing.
01:17 Jerome Powell yesterday said the same,
01:19 which is that there is no number out there
01:22 or no timeline out there.
01:23 But my question to you is broadly
01:25 that could the unthinkable of 2023
01:28 happen, which is that we may not see any rate action in 2024
01:32 from the US if inflation prints stay higher
01:35 than what is envisaged?
01:38 These are great questions.
01:40 If you take a step back and you look at global growth,
01:43 it's actually doing very well.
01:44 We just got the February PMI numbers for all countries.
01:47 And global PMI is showing that manufacturing globally
01:51 is now in expansion mode.
01:53 Just two months ago, it was in a contraction mode.
01:56 Services PMI is doing even better.
01:58 New orders, future expectations are only
02:01 rising across literally many countries.
02:04 India obviously is spearheading all of this.
02:06 Even in the US, the PMIs have done very well.
02:09 Some of the ISM prints have been extremely strong.
02:11 So generally speaking, it almost seems like growth
02:14 is much better now than it was a couple of months ago.
02:17 Of course, there are problems.
02:18 There are issues out there.
02:19 For example, Red Sea, and we could see some fallout
02:22 from there later.
02:23 But it's not really being seen in the data,
02:25 at least right now.
02:27 This brings us to inflation.
02:29 And as you mentioned, January US inflation
02:33 looked extremely strong.
02:34 It was higher than expected.
02:36 More coming from services than from goods.
02:40 And my sense is that, yes, I think
02:41 this will make a lot of policymakers in the US
02:44 more thoughtful about the rate cutting cycle than before.
02:47 To be sure, I think if you look at a very tailored rule
02:50 kind of approach, there is space for rate cuts in the US.
02:55 But because January inflation came in so much more higher
02:58 than expected, I think right now all eyes
03:00 are on February inflation.
03:02 Will it also surprise on the upside?
03:04 Or will it show some softening?
03:06 So there are lots of moving parts.
03:08 And we are all prisoners of monthly data
03:11 at this point of time.
03:13 A US economist does have his Fed rate cut,
03:16 first rate cut in June.
03:18 I must say that he's had it there for over a year now,
03:23 especially when markets were expecting rate cuts much
03:26 earlier in the year.
03:27 He was like a standout view.
03:28 So from that perspective, he was expecting later rate hikes.
03:33 But right now, because of tailored rules suggest,
03:35 so he's keeping to his June first rate cut.
03:38 But of course, I think February inflation data
03:40 will have a lot of meat there.
03:42 So what does that do to--
03:47 OK, what is a combination of what you just
03:50 mentioned with regards to global manufacturing,
03:52 so on and so forth?
03:53 And if indeed the US inflation print is not benign, let's say,
04:01 and you add to the fact that Indian is a central bank,
04:06 will not necessarily make a move on the downside
04:10 if the US Fed is staying pat and we have the Indian growth
04:13 numbers looking the way they are?
04:15 Does it push back any kind of hopes
04:18 that people might be having for the Central Bank of India
04:23 to make a move in order to support growth?
04:27 Look, again, a great question.
04:29 Growth in India has been extremely strong.
04:31 Maybe later, if time permits, we can talk about the December
04:34 GDP number.
04:35 But actually, more important is the data
04:37 that has been flowing in after that, the Jan and February PMI,
04:41 for example.
04:43 We've seen much better data in Jan-Feb
04:45 than we saw in the last quarter of 2023,
04:48 both for PMI manufacturing, PMI services.
04:51 PMI services in particular, right now
04:53 if you look at new orders, it's at a one decade high.
04:56 If you look at input prices, it's
04:58 at a four-year low, which basically
05:00 means that corporate margins are improving a little bit
05:03 in Jan-Feb compared to the previous quarter.
05:06 So things are looking really up at this point.
05:09 And my sense is that when you have such a great opportunity,
05:14 that growth is extremely strong and there's
05:16 no real pressure to cut rates, why not
05:19 use this opportunity to bring down inflation
05:22 to that 4% target, which we've been talking about a lot?
05:26 So yes, a very long answer to your question,
05:28 that if growth remains so strong and there are no rate cuts
05:33 globally, my sense is that the RBI will not
05:35 be in any hurry to ease.
05:37 Even if RBI eases, my sense is it's
05:39 going to be an extremely shallow rate cutting cycle.
05:42 Because what is the need for rate cuts at a time
05:45 when growth is anyway doing well and things
05:50 are on the right side?
05:51 And inflation is not yet down to 4% or close to 4%.
05:56 No, not at all a long answer.
05:57 We love listening to you, Pranjul.
05:59 So please continue.
06:00 But just I have a follow-up question to this.
06:01 Your GDP note was that you need to calm down.
06:06 That was the title.
06:07 And then I hear you say right now
06:09 that while GDP came and what it did,
06:10 the PMI data is extremely buoyant.
06:13 So do people really need to calm down or celebrate growth
06:16 in India?
06:18 Look, I celebrate growth in India.
06:20 I'm very excited about it.
06:21 But I think the 8.4% number had a lot of statistical issues
06:25 in it.
06:26 And that was my point.
06:27 By the way, this title, "You Need to Calm Down,"
06:29 is actually a Taylor Swift song.
06:31 And Taylor Swift is in Asia this week.
06:33 So I just thought it'd be a nice touch.
06:36 But a dagger part, my sense is that we
06:42 need to look at the GVA numbers a little better
06:44 than we look at GDP numbers.
06:46 And I'll just tell you two quick reasons for it.
06:48 GDP is GVA plus indirect taxes minus subsidies.
06:53 It's all a little complicated.
06:54 It should normally be all right.
06:56 But there are two reasons why a divergent between them
06:59 can sometimes creep up.
07:01 One is a very India-specific reason,
07:03 the fact that when we pay out our subsidies,
07:05 it's cash payout.
07:07 It's not accrual accounting.
07:08 So what we do is that even if the subsidy is for December,
07:11 but if we pay it out for March, then the whole thing
07:13 will be shown for March and not for December.
07:15 We do cash accounting.
07:17 And that messes up the number a bit.
07:19 The second is global.
07:20 These are very different times.
07:23 I think commodity prices go up and down.
07:25 In the December quarter, we saw a 65% year-on-year number
07:29 in terms of fall in fertilizer prices.
07:32 That also brought down the subsidy bill.
07:34 The subsidy bill was extremely low,
07:36 because of which the GDP turned out
07:38 to be much higher than GVA.
07:40 It really doesn't have very much to do
07:41 with growth on the ground.
07:43 So if you want to get a sense of growth on the ground,
07:45 it's better if you follow GVA, particularly
07:47 given some of these little things that creep up into GDP,
07:50 especially in India.
07:52 So Pranjul, GVA per se, relative to the rest of the world,
07:55 even if the GVA numbers are looked at,
07:57 one, probably not as bad.
07:59 Yes, we know that fancy 8% print, but not a bad print.
08:02 But the addition that I'm making to that
08:06 is that while, even if you look at the GVA, the GDP,
08:09 and looking strong, consumption isn't quite firing.
08:15 Now, is that a reason or a cause for concern?
08:20 And can any regulatory action or a policy action amend that?
08:25 Or it will only stem out of confidence and wage growth?
08:29 Yeah.
08:30 I'm very happy you asked this question.
08:32 Because my sense is that consumption growth, which
08:35 we are seeing in GDP, is underreported.
08:39 And my sense is that in subsequent revisions, which
08:42 will happen between the next one to three years,
08:45 this consumption growth number will be revised upwards.
08:49 I'm saying this because we are seeing investment growth being
08:53 strong.
08:54 Over a long period of time, if investment growth is strong,
08:58 then consumption growth is also stronger than before.
09:01 They move together.
09:02 Because people who are working in this investment construction
09:05 sites are earning some wage, which they can spend.
09:08 Even if it's capital-intensive investment,
09:11 the owners of capital get remunerated.
09:14 So my point being that you can't have
09:15 such a huge divergence between investment and consumption.
09:19 Couple of other points.
09:20 If you look at GVA personal services, which
09:22 is hidden in the GVA, that's extremely strong.
09:25 That's 7.5%.
09:27 That's personal consumption.
09:29 And it doesn't match with the 3% private consumption
09:31 that we get in another part of GDP.
09:33 So I think there is some problem going on here.
09:35 Finally, look at bank credit data.
09:38 If you look at personal loans, you take out mortgage.
09:41 So personal loans for non-housing,
09:43 even that is extremely strong.
09:45 And a lot of that is there to fund consumption.
09:48 And sorry, one more final point.
09:50 If you look at consumer imports, they are on fire.
09:53 They are 50% higher than pre-pandemic levels.
09:55 So when I put all of this together,
09:58 it seems to me that this about 3% private consumption growth,
10:02 which we are seeing in national accounts,
10:03 is a little bit of underreporting.
10:06 And there are a lot of issues here.
10:08 But I think in the next couple of years,
10:09 it will get increased a little bit.
10:12 OK.
10:12 So you're saying there are challenges
10:14 to capture this well.
10:15 And those challenges will get ironed out,
10:17 which will result in the correct reportage, which
10:19 according to you will be higher than what
10:21 is showing right now.
10:22 Yes.
10:23 OK.
10:23 The other thing, Pranjala, and I don't remember it exactly
10:27 to the T, but you tend to bring out these points wherein
10:30 you look under the hood and look at what's
10:32 happening to data which is not quite visible.
10:34 You had mentioned some time back, if I'm not wrong,
10:36 that when you looked at the rural balance sheets
10:38 and there were some high frequency
10:40 indicators which indicated that that part of the market
10:42 was not hurting as much as is widely believed.
10:46 Now, this was maybe three, four months ago.
10:48 Some time has passed from now until then--
10:50 or then until now, excuse me.
10:52 Is that trend continuing?
10:54 Is rural a lot better than what the market is fearing?
10:57 Yeah, I think I'll hold on to that view.
11:00 Look, at no point am I saying that rural is rising rapidly.
11:05 It's not, particularly because last year was an El Nino year
11:08 and the Kharif production was weak.
11:10 And we know that there were a lot of stresses out there.
11:13 So I'm not saying rural incomes are doing extremely well.
11:16 But at the same time, I don't think there's rural distress
11:19 because that alternate employment in construction
11:21 sites has really picked up.
11:23 A lot of people are working in these construction sites
11:26 and sending money back home, which I can actually
11:29 track from some of the remittances data that we get.
11:32 If you look at cash balances in Jamdhan accounts, which
11:34 are mostly rural, those are also higher than before.
11:38 So I do think that things are not as bad as they could have
11:41 been if we did not have this construction
11:44 boom in the economy that is going on at this point of time.
11:47 But having said this, I do think that there are
11:50 signs of K-shaped recovery.
11:52 I'm not against that point because one group of people
11:55 is doing much better than another group of people.
11:58 I think one strong source of growth
12:00 in the country in the last couple of years
12:02 has been professional services exports,
12:04 the advent of global capability centers,
12:07 people associated with those high growth sectors
12:10 are doing much better than somebody who's in rural India
12:13 and is having to grapple with El Nino.
12:15 So a K-shaped recovery is there.
12:17 But my small point is that the rural distress is not
12:20 as much as a lot of people have made it out
12:22 to be because they have alternate source of income
12:24 from construction.
12:26 Got it.
12:27 Pranjali, one final question.
12:28 And that is on yesterday's announcements
12:30 around Indian bond inclusion in the Bloomberg Bond Index
12:33 as well from Jan.
12:34 So we have JP Morgan from June this year, or thereabouts.
12:37 Then six months, then Bloomberg Index as well.
12:41 How material-- I mean, we know it's material.
12:43 But how material from a two, three year perspective
12:45 would a combination of these two and some other indices
12:48 be for the bond market debt?
12:50 Yeah, so we got the announcement in September last year
12:53 for inclusion to JP Morgan, the emerging markets index.
12:56 And actually, it's going to start in June.
12:58 But already in the run up, we've seen since October $10 billion
13:02 in India's bond market.
13:03 So it is substantial.
13:05 And my sense is that when the actual inclusion happens
13:08 in June, then we get even more money.
13:10 So that is exciting.
13:11 And then we got this announcement yesterday
13:14 for a similar inclusion in the Bloomberg Emerging Market
13:16 Index, which according to some calculations
13:19 could bring in another $3 to $4 billion
13:21 over the next couple of quarters.
13:24 The one that is awaited is the Bloomberg Global Aggregate
13:28 Index, which is a far bigger index.
13:30 But a lot of people think about this
13:33 as a stepping stone towards inclusion into a bigger index.
13:37 So if over time, we are going to see a series of inclusion,
13:40 then yes, I think the sort of magic
13:42 we used to see in terms of portfolio
13:45 inflows into equity markets, like last year
13:47 was $25 to $30 billion.
13:49 We could see that kind of magic in bond market
13:53 over the next one or two years.
13:54 So I think that is interesting.
13:56 But taking a step back, what this really means
13:59 is that the rupee is extremely well-funded.
14:02 My magic number is $25 billion.
14:05 If we get this extra inflows of $25 billion
14:07 from somewhere or the other every year,
14:10 then our balance of payments goes into a big surplus
14:12 and the rupee becomes extremely well-funded.
14:15 Last year, it came from equity markets.
14:17 FY25, I think it'll come from bond markets.
14:20 And then I think from FY26 onwards,
14:22 it'll come more from FDI inflows.
14:24 And that is another interesting part.
14:27 FDI inflows into India have slowed.
14:29 But my own work suggests that in a two-year horizon,
14:33 they'll start to pick back up.
14:35 And not just that, they will double.
14:37 And I'm seeing that because I track
14:39 a lot of foreign investment intentions data
14:41 into the country.
14:42 And there are a lot of intentions
14:44 into futuristic sectors from semiconductors,
14:48 renewables, green hydrogen, AI.
14:51 And I think all of that money will materialize
14:53 in a two-year horizon.
14:54 So the rupee remains extremely well-funded.
14:57 - Pranjul, whenever you have the time,
14:59 we'd love to do a slightly longer conversation
15:00 on this particular aspect that you just mentioned,
15:02 hopefully from our studios.
15:04 But it's always lovely talking to you.
15:06 Today was no different.
15:07 Thank you for joining us.
15:08 I much appreciate your time.
15:10 - Thanks for having me.
15:11 - All right.
15:12 That's the view from Pranjul Bhandari of HSBC.
15:14 (upbeat music)
15:17 (dramatic music)