Neither fiscal nor monetary stimulus is advisable for India: Sajjid Chinoy, JPMorgan
ET Now|
Updated: Oct 18, 2017, 04.25 PM IST
Talking to ET Now, Sajjid Chinoy, JPMorgan, says if global growth remains as strong and buoyant as the IMF forecast, then eventually that is going to spin over into India. We will see that later in the year and in 2018, our exports will do very well.
Edited excerpts:
The economy seems to have stalled. What should be the government policy to kickstart the economy?
I think that a) this government needs to be commended for the fiscal discipline that has been shown for the last few years and I want to emphasise that we have undertaken big reforms last year. This is a transitory shock in my view, bit of a supply shock which is understandable after demonetisation and GST. So a) you do not respond to a supply shock with a demand response. b) In the second half of this fiscal year we will grow out of and applying fiscal or monetary stimulus would not be advisable.
You do not think we need to loosen the monetary policy?
The monetary policy is constrained by inflation. In fact, we do see inflation above 4% in the first quarter of next year and that is going to constrain how much the MPC can move. The larger point is if global growth remains as strong and buoyant as the IMF forecast, then eventually that is going to spin over into India. We will see that later in the year and in 2018, our exports will do very well. These global tailwinds should help growth in India in the second half of the year.
You do not think the Indian economy needs a fiscal stimulus. I would imagine as a corollary you also do not think there is any need for the government to deviate from its path of fiscal prudence, fiscal consolidation and therefore it should meet the fiscal deficit target?
Again I think in the larger context here, is that the government has been very disciplined in meeting its targets. If there is an exceptional circumstance in one particular year because we moved to GST, revenues have undershot, if there is modest slippage in that account, I am sure markets, ratings agencies, investors will see through that as long as there is no fundamental shift in the fiscal consolidation path for the coming years.
For that, I am quite sure the government will stick to its fiscal path. The key is to focus on the fact that we have taken big game changing structural reforms which can be dislocational for a few quarters, markets have to learn not to get so excited or nervous or anxious, wait through it. Some of these temporary supply shocks will reverse, growth will pick up, what you do not want to do is prematurely stimulate the economy like we have in the past and for that to spill over into a larger external imbalance so higher inflation and then you have got to sort of hit on the breaks and impede any insipient recoveries. I think the key is just to be patient here.
Edited excerpts:
The economy seems to have stalled. What should be the government policy to kickstart the economy?
I think that a) this government needs to be commended for the fiscal discipline that has been shown for the last few years and I want to emphasise that we have undertaken big reforms last year. This is a transitory shock in my view, bit of a supply shock which is understandable after demonetisation and GST. So a) you do not respond to a supply shock with a demand response. b) In the second half of this fiscal year we will grow out of and applying fiscal or monetary stimulus would not be advisable.
You do not think we need to loosen the monetary policy?
The monetary policy is constrained by inflation. In fact, we do see inflation above 4% in the first quarter of next year and that is going to constrain how much the MPC can move. The larger point is if global growth remains as strong and buoyant as the IMF forecast, then eventually that is going to spin over into India. We will see that later in the year and in 2018, our exports will do very well. These global tailwinds should help growth in India in the second half of the year.
You do not think the Indian economy needs a fiscal stimulus. I would imagine as a corollary you also do not think there is any need for the government to deviate from its path of fiscal prudence, fiscal consolidation and therefore it should meet the fiscal deficit target?
Again I think in the larger context here, is that the government has been very disciplined in meeting its targets. If there is an exceptional circumstance in one particular year because we moved to GST, revenues have undershot, if there is modest slippage in that account, I am sure markets, ratings agencies, investors will see through that as long as there is no fundamental shift in the fiscal consolidation path for the coming years.
For that, I am quite sure the government will stick to its fiscal path. The key is to focus on the fact that we have taken big game changing structural reforms which can be dislocational for a few quarters, markets have to learn not to get so excited or nervous or anxious, wait through it. Some of these temporary supply shocks will reverse, growth will pick up, what you do not want to do is prematurely stimulate the economy like we have in the past and for that to spill over into a larger external imbalance so higher inflation and then you have got to sort of hit on the breaks and impede any insipient recoveries. I think the key is just to be patient here.
