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India Better Positioned Now Than 2013 Crisis, Says JPMorgan’s Morparia

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India is “absolutely better cushioned” today than in 2013, when it was grappling with a currency crisis and trade slowdown, according to JPMorgan.

“Today inflation targeting is embodied in a statute book in India,” Kalpana Morparia, chief executive officer of JPMorgan (South and South East Asia), told BloombergQuint in an interaction. “That was a seminal piece of legislation India managed to get through. Also, our reserves are close to $400 billion today.”

"Tools available to the policymakers in an environment that’s significantly better than 2013 certainly gives you a lot of hope that we (India) will be in the driver seat to prevent runaway volatility." - Kalpana Morparia, Chief Executive Officer, South and South East Asia, JPMorgan

Key highlights from the conversation:

Picture Amid U.S.-China Trade War

  • There's a lot of optimism in terms of underlying growth momentum across sectors like services and manufacturing.
  • Dramatic changes in the rural economy in terms of higher productivity in agriculture, overall increase in rural incomes is propelling consumption.

Trade Deficit Woes

  • India is far more integrated with the global economy than it was 10-15 years ago.
  • Weakening rupee is helpful for exporting industries like pharmaceuticals, IT services and auto-components.
  • Rupee fall can be a huge boon for agricultural produce and exports as we're in a surplus situation.
  • India offers a whole lot of downside protection because of a large domestic economy.

Is 2018 Similar To 2008 or 2013?

  • Unlike 2013, today inflation targeting is now embodied in a statute book in India.
  • We are much better cushioned as foreign-exchange reserves are close to $400 billion.
  • Tools available to the policy makers today, that in 2008 or 2013, gives hope that we will be in the driver seat to prevent runaway volatility.

Effect Of Fed Rate Hikes On Emerging Markets

  • Every emerging market is slightly differently placed and India is in the middle of the pack.
  • India's currency depreciation is much better than Malaysia, Indonesia, Brazil and Argentina. And above mentioned tools at the disposal of policymakers will offer flexibility.

Insolvency And Bankruptcy Process

  • Much better than the earlier system and always takes time for a new statute to settle in.
  • Insolvency Bankruptcy Code and Goods and Service Tax are landmark pieces of legislation since 1991.
  • Equal power for the creditor is itself is a game-changer.

On The Recent Bank Merger

  • It's a clever move. The team engaged in consolidation can be ring-fenced to prevent contagion.
  • There could be common accounts between these banks, which could only aid during the resolution or reconstruction process.

Digitisation In The Economy

  • Demonetisation accelerated the acceptance of digital payments solutions and base bank account opening.
  • Lot of potential benefits expected in terms of increase in agricultural productivity.

Here are edited transcripts from the interview:

As you see the trade pressures or the conversations around trade war and consistent interest rate hikes from the U.S., how are markets and business looking to you ?

Kalpana Morparia: If you look at India a year ago, the bigger worry was growth rate had come off below 7 percent, the macro looked very stable at that time and we were worried when will growth pick up. Cut today- I think all the worries are about global macro situation, price of oil, the slide in emerging market currencies. But if you look at on the ground and the growth momentum that is there, India clocked one of its its best growth rates at 8.2 percent. In the conference, there is a lot of optimism in terms of underlying growth momentum in India across sectors like services, the plans that the government has in terms of manufacturing share within the overall GDP. In the last session, we talked about the rural economy and the dramatic changes that are happening there in terms of higher productivity in agricultural produce and overall increase in rural incomes that is propelling a lot of consumption.

Do the micro really take care of what is really a concern for a lot of people. There is a real danger of the trade deficit ballooning to a level which we have not seen thus far. Is there a clear and present danger or does the micro take care of it ?

Kalpana Morparia: India is far more integrated in the global economy than it was 10-15 years ago. What I think gives us a lot of positive momentum in India is the underlying domestic economy. There was a lot of talk about the weakening rupee and how it is helpful for the exporting industries like pharmaceuticals, I.T. services and auto-components. We debated a lot in the earlier session about how this can be a huge boon to the agricultural produce as we are in as surplus situation. Unlike a whole lot of other products where you need multi-year planning before you get into investment mode, agriculture is flexible. It is one sowing season to another season. Minister Prabhu talked a lot about the government’s thrust in terms of overall saying how we can eventually look at a more seamless agricultural export produce. So India does offer a whole lot of downside protection because of a large economy that we have domestically.

You have seen many such cycles. Is 2018 in that radically different. Are we a lot more cushioned than we probably were in the past ?

Kalpana Morparia: We are absolutely so much better cushioned. Even if you look at the 2013 cycle, inflation was running away, the general mood of the external investors was that our central bank was behind the curve in terms of interest rates. Cut to today, you see inflation hovering around the 4 percent, may be it might go up to 5 percent and inflation targeting is now embodied in a statute book in India. This was a seminal piece of legislation India managed to get through. You have reserves which are close to $400 billion today that was not the case then. So the tools available to the policy makers in an environment that is significantly better than 2013 certainly gives you a lot of hope that we will be in the drivers seat to ensure that there is no runaway volatility.

Where are you on the rate hike argument?

Kalpana Morparia: This is hands of an independent MPC and inflation targeting is part of a statute book. Our general call is they will watch inflation very carefully and our economists’ current call is that we might see two interest rate hikes in current calendar year largely driven by shock of the oil price.

If the Fed has to move a lot more and quicker that what the Fed itself current anticipates, do you think EMs stand the risk of not fully anticipating the quantum of pressures that could come in from such a rate move?

Kalpana Morparia: Every EM is slightly differently placed, India is actually in the middle of the pack. If you look at a five year record of whats happened to the Indian currency, we have depreciated by about 12-12.5 percent. The depreciation has been much more rapid in the current calendar year, more particularly in the last month, but if you look at it in perspective, we are at about 12.5 percent, China is at about 10-10 percent. Several other large economies including Indonesia and Malaysia have actually depreciated by 22-23 percent. I am not talking about Brazil, Argentina and other countries. So every EM is in a slightly different place. Cutting to India, we just talked about the current cushions available compared to 2013 and therefore the flexibility available to the policy makers makes it a far better situation.

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