BackRobust recovery will have to be driven by investment: Sajjid Chinoy
The JPMorgan economist on policies the next government should pursue to help economy recover and how a confused mandate in 2014 may hurt growth
Premium
Mumbai: Chief India economist at investment bank JPMorgan Sajjid Chinoy speaks on policy initiatives the next government should pursue to help the economic recover and how a confused mandate in 2014 may hurt growth. Edited excerpts:
What is the main lesson that India should learn from its experience over the past seven years?
That in a supply constrained economy such as India’s, the only sustainable driver of growth is investment. By itself, domestic consumption or export growth—without a commensurate pick-up in investment—will simply stoke inflation and be unsustainable. So the policy focus must be squarely on jump-starting private investment. Consumption will follow.
What do you think is the sustainable rate that the Indian economy can grow at?
It must be recognized that the corporate investment to GDP (gross domestic product) ratio has fallen by a whopping 10 percentage points over the last five years, with the bulk of the decline in equipment investment which embeds technological change. This has implications both for capital stock and productivity growth. Given this moderation, potential growth today is somewhere in the 5% handle. For potential growth to go back to 7%, corporate investment to GDP growth will have to go back close to the pre-Lehman levels.
Can there be a robust recovery without an investment revival?
In one word, no. The fact that core CPI (consumer price index) is stuck at 8% even as growth continues to moderate, suggests there is not nearly as much slack as is presumed. So any pick-up in consumption or exports will stoke more inflation, force more tightening and choke off any recovery. Therefore, any robust and sustainable recovery will have to be driven by investment.
Name three big policy initiatives that the next government should pursue to help an economic recovery?
1. Rationalize and streamline regulatory and implementation bottlenecks in the infrastructure sector (clearances, land acquisition, raw material availability, appropriate user charges).
2. Implement the goods and services tax (GST).
3. Work with the Reserve Bank of India (RBI) to clean up the debt overhang by re-capitalizing public sector banks where needed.
Will a confused mandate in 2014 hurt the economy?
The link between political stability and economic outcomes over the last 20 years is, at best, tenuous and, at worst perverse. A lot of positive steps have been undertaken over the last 12 months—calibrated diesel price increases, FDI (foreign direct investment) reform, expediting project clearances and a return to fiscal discipline. Emerging markets will be under pressure in the coming years as the Fed begins to normalize. It’s therefore critical that whatever the hue of the next government, they continue and build on these initiatives.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
