Macroeconomic Stability Is Need Of The Hour, Says JPMorgan's Sajjid Chinoy
“Focusing on stability now is the best way to reduce the growth sacrifice later,” JPMorgan's Sajjid Chinoy says.
India's GDP growth rate, seen at 7% this fiscal by most, is still a mark of great resilience in the current global economy, according to Sajjid Chinoy.
“But that should not mask what we need to focus on,” the chief economist for India at JPMorgan said. “Unlike last year, exports may not perform as well this year. As such, the question is where can growth come from? As Covid-19 has receded, the non-tradable sector has recovered.”
“The twin-balance sheet problem is behind us—corporate debt to GDP and bank NPAs are much lower. There are lots of silver linings but there has to be recognition that in this world, growth is at a premium and momentum of growth may well have to slow around the world, and India might not escape that,” Chinoy said in an interview to BQ Prime on the sidelines of the JPMorgan India Investor Summit.
“We have to continue to do what the central government has been doing—focusing sharply on infrastructure spending,” he said. “If the centre and states can push on the public investment handle within the larger fiscal envelope, that does create a condition in a year or two, to crowd in private investments in those sectors.”
The problem for the private sector today, according to him, is not a balance sheet problem, it’s a utilisation problem. “If the government can keep up infrastructure spending, then there is hope that at some point the baton will pass on to the private sector.”
For now, there is need for macroeconomic stability. “Focusing on stability now is the best way to reduce the growth sacrifice later,” Chinoy said. For this year, focus should be on fiscal consolidation, monetary normalisation, and perhaps using the rupee tactically to solve the external imbalances.
On the current account deficit, there is no reason to panic since the Reserve Bank of India has a war chest of reserves, Chinoy said. “But the question is how do you bring external imbalances down without extracting a high price on growth?” “My prescription has been to use the real effective exchange rate,” Chinoy said. “If the exchange rate is brought down in a calibrated manner, over time research has found it helps exports, it will discourage imports, the current account will narrow.”
Monetary Policy
The Reserve Bank of India has done a good job of frontloading monetary policy, Chinoy said. There has been a decline in the household inflation expectations, margin pressures have eased for firms and momentum of core inflation has come down. But the fact is that inflation is still expected to remain above 6% for the next seven or eight months. As such the RBI could perhaps raise the benchmark repo rate by 50 basis points at its scheduled meet next week, he said.
Amid the pandemic, emerging markets were more constrained in what they could do (in terms of fiscal stimulus). As such, emerging markets are still below their pre-pandemic path. While these economies would want to focus on recovery from the pandemic, instead they have been forced to cyclically consolidate fiscal and monetary because of what’s happening in the U.S. and globally, he said.
Emerging markets are faced with higher rates from the Fed, the ECB, the Bank of England, the strongest dollar in two decades and still elevated commodity prices, Chinoy said. “It’s a trifecta that will keep emerging markets awake.”
Watch the full interview here: