Tag: Samiran Chakraborty

With every new COVID wave, correlation between mobility restrictions and GDP reducing: Citi

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Roaring markets notwithstanding, the Indian economy appears to be facing several headwinds. Rural consumption has slowed down, as pointed by consumer durables and FMCG players. Along with it, India’s trade deficit has inched to uncomfortable levels, coupled with bond yields moving up. COVID-induced restrictions, announced by several states, are also playing spoilsport. To understand whether any of these can become brakes to growth, CNBC-TV18’s Latha Venkatesh spoke to Samiran Chakraborty, chief economist-India at Citi.

Without taking anything away from the Omicron threat that is looming over our heads, Chakraborty said that with every passing wave, the correlation between mobility restrictions and GDP is reducing. The virus is not having as much of an impact on the economy as it did before. Hence, he is not in a hurry to slash the GDP forecast. However, he believes that Omicron could be a factor that will drive both fiscal and monetary policy, going forward.

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He said, “The Omicron threat is looming over the economy. But I must also say that our work globally is suggesting that with every passing wave, the correlation between mobility restrictions and GDP impact is getting weakened or in other words, the virus is not having as much impact on the economy as it initially was having.”

“That’s why at this point of time, we are not in a hurry to slash our GDP growth forecast for this year. But it’s quite obvious that this will become a factor, which will drive both the fiscal and monetary policy going forward,” he added.

Chakraborty also cautioned about rural consumption. He said that there is some pressure on the agrarian part of the economy and the government flows to rural India is less in FY22 than in FY21. He added that the 9.8 percent GDP forecast for FY22 is after considering the decline in rural economy. However, he cautioned, that if the third wave leads to more restrictions, it could impact growth forecast.

He said, “We have been highlighting this pressure on rural consumption for a while now. In fact, if you look at our rural consumption index, which we create out of about nine different variables, this index is yet to get back to the pre-second COVID wave levels.”

Chakraborty added, “We are seeing some pressure on the rural, agrarian part of the economy. We are at about 9.8 percent – we increased our GDP growth forecast a bit after Q2 released, because Q2 was slightly better than what we had initially anticipated. I think we have already baked in the rural economy decline in a forecast.”

“But I don’t think we were in a position to make any statements about the Omicron-related Q4 impact as yet, because this is an evolving situation. If third wave leads to more and more restrictions across the country, then obviously, it will have an impact,” he explained.

Also Read: Rising Omicron cases can impact growth by 0.3% in March quarter: Report

Additionally, Chakraborty added that everyone has gotten used to 1-1.5 percent current account deficit (CAD), and the last time the country witnessed 3 percent CAD was almost 10 years ago. He added that monthly trade deficit could decline to around $17 billion in the next year, thereby reducing CAD. Further, he explained that a $10 rise in crude prices results in a 0.4-0.5 percent rise in CAD. However, if CAD crosses the 3 percent mark, it could result in more flutter.

He said, “We have got used to about 1-1.5 percent of current account deficit. The last 3 percent current account deficit was way back, almost 10 years back. So the clearly this is a situation which causes some concern.”

He added, “Our commodity analysts believe that for a few important items for India, the commodity prices next year are likely to fall and when we bake that into our forecast, what we see is that the monthly trade deficit can decline from about USD 21 billion to about USD 17 billion next year and if that happens, then we should be able to get back to above 1.6 percent of current account deficit.”

He further added, “This is still more manageable, but very important is this price decline. If that does not happen, then we would be looking at a much larger current account deficit, going forward. We think that if the current trend rate continues then next year’s current account deficit will be more than 2 percent of GDP also.”

Chakraborty explained, “The sensitivity is that about a USD 10 per barrel increase in oil price leads to about USD 10 billion to USD 14 billion of increase in current account deficit, or about 0.4 to 0.5 percent increase.”

“My sense is that with RBI sitting on close to USD 650 billion of reserves, about 2 percent current account deficit is not going to be much of a problem, especially if next year, we see the bond index inclusion and that leads to a huge bunched up portfolio inflow. But if the number starts reaching 3 percent plus, then maybe it will create a bit more flutter,” he added.

Watch the video for the full interview.

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High-frequency indicators have improved; global PMI readings turning around: Citibank

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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On Thursday, the Bank of Korea shook the world by hiking rates by 25 basis points (bps) to 0.75 percent. It’s the first central bank of a developed country to do so. The governor of Bank of Korea pointed to signs of overheating, such as higher than expected inflation and rising property prices. The US Fed is also expected to begin tapering, if not at Jackson Hole, then at the September FOMC meeting. Samiran Chakraborty, chief economist at Citibank India, has written an interesting report on what should one expect from the Reserve Bank of India (RBI) in the months to come.

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“I think for central bankers across the world, not just Korea, but Brazil and Russia, where people have hiked the rates already – the challenge seems to be not just on the inflation side, but a lot of central bankers are worried about some asset price inflation particularly for real estate, that is why probably, they are being more pre-emptive in doing the rate hikes,” he said.

According to him, the context is slightly different for India. “This time around, India does not need to follow the rest of the world so closely. One reason is that if you look at the spread between the 10-year US treasury and 10-year G-Sec, that is at 500 bps now. Normally, it is around 350-400 bps. So we have a lot of room to go before we have to catch up with the Fed,” he said.

Global factors at this moment are not so important from India’s own monetary normalisation process.

Also Read: Jackson Hole: Not just ‘Mecca’ for central bankers but economists world over

In terms of gross domestic product (GDP) growth, he stated, “We have a number around 22 percent or so for this quarter, which is slightly higher than what RBI’s current estimate is. So in that sense you can say that there will be pressure but the fact of life is that if you look at Q2’s high-frequency indicators, they have improved but are at around 90-95 percent of pre-COVID levels, this is kind of plateauing out a bit. So we need to be a bit more watchful before we go ahead and do upward revisions to GDP growth numbers. I would probably wait for at least a quarter more.”

In the monetary policy statement, the RBI governor Shaktikanta Das said, “We want to ensure that growth revives and sustains durably before we change policy.”

When asked what will the RBI watch out for to consider that durable growth has arrived, Chakraborty replied, “Rather than focusing on the word durable, I think I will focus on the two words ‘revive’ and ‘sustain’ because these two words were inserted in the June policy meeting. Our sense is that if the word ‘revive’ means getting back to the pre-COVID level then that can happen in Q3 of this year and the way the framework is working, RBI is going to look at level versus level rather than growth rates. So they will look at different high frequency indicators and look at their level in Q3 this year versus the level in the quarter before COVID started. If those numbers are more or less matching then the first signs of normalisation can come from there.”

While sharing his expectations from RBI’s actions, he said, “In the October policy, they are likely to increase quantum of the 14-day variable reverse repo auction as also bring down the G-SAP amount for the third quarter. These two would be soft signals towards normalisation.”

For the entire discussion, watch the accompanying video.

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Indianomics: Experts discuss COVID-19 impact on economy

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Markets may be cheerful because they are forward-looking but economists are worried about ‘the here and the now’, and now a series of downgrades is being seen to gross domestic product (GDP) forecast because economists have some idea where the COVID – at least current curve – may be peaking.

The latest downgrade has come from Citi. The brokerage house believes that India’s gross value added (GVA) will be nearly 9.2 percent versus its original projection of 11.6 percent for the current year. HSBC too had cut the expected GVA number to 7 percent versus its earlier projection of 10.2 percent.

Citi is expecting a 2.4 percent cut, HSBC is expecting a 3.2 percent cut and Nomura is expecting a 1.8 percent cut in its GDP forecast for FY22.

Pranjul Bhandari, Chief India Economist of HSBC; Sajjid Chinoy, Chief India Economist of JPMorgan, and Samiran Chakraborty, Chief Economist at Citi, discussed this further.

For the entire conversation, watch the accompanying video…

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Indianomics: Experts decode GDP downgrades; say pent up demand to boost Q2

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The season for gross domestic product (GDP) downgrades appears to have begun. Nomura was the first to lower the FY22 India GDP forecast to 12.6 percent from 13.5 percent. Now JPMorgan has lowered their forecast to 11 percent from 13 percent and UBS has lowered to 10 percent from the 11.5 percent earlier. The reasons are obviously the COVID surge and resultant restrictions imposed by several state governments.

Incremental daily cases, which had fallen from about one lakh a day in September 2020 to 10,000 a day in February, rose to 15,000 on March 1 then to 35000 on March 15, 60000 on March 25. April 1 it was 90,000, April 4 it was 1 lakh, April 10 it was 1.5 lakh and April 15 it was 2 lakh. GDP growth as of early end march was confidently expected to break from the 4 year old declining trend to post a robust 10.5-12.5 percent growth and settle into a near 7 percent thereafter.

But the surge in COVID cases has led to doubts over growth. Simultaneously other clouds are gathering. The rupee which was steady between 72.5 per dollar and 73.5 per dollar slided to 75.3 in just 5 trading sessions.

Foreign funds who were pouring into equity market in February and March turned sellers.

Are they worrying that the unrelenting surge in corona cases is likely to rock Indian macros. Also is there a worry that RBI’s money printing will worsen India’s inflation and push up yields. Headline inflation is anyway expected to remain over 5 percent while core inflation is sitting at 6 percent. Wholesale price index came in scarier.

Hitendra Dave, Head of Global Banking and Markets at HSBC India, Samiran Chakraborty, Chief Economist at Citi and Sonal Varma, Chief Economist at Nomura India shared their views.

“We need to watch how the infection cases pan out. The stringency of the lockdown is much lower and the focus is on testing and vaccination,” said Varma.

“We have seen last time around that pent-up demand always – to some extent – catches up and the second quarter growth would be better than what we were anticipating before,” Chakraborty mentioned.

For entire conversation, watch the video…

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