Don't foresee any major reversal in policy for next 2-3 years: Chetan Ahya
Chetan Ahya, Chief Economist- Asia and EM at Morgan Stanley expects investment growth to surpass consumption growth in the next five years.
With the cabinet formation now out of the way, focus shifts to the Union Budget expected in July.
Morgan Stanley believes that policymakers will continue to focus on boosting private investment.
Speaking to CNBC-TV18, Chetan Ahya, Chief Economist - Asia and EM at Morgan Stanley said they do not expect any major reversal in policy for the next 2-3 years.
He believes supply side reforms will remain the best approach to maximising social welfare.
Maintaining macro stability, controlling inflation, and encouraging investment growth and job creation, Ahya says, are crucial for political success and economic well-being.
He noted that real incomes for the bottom 20% improved by only 1.3% during the 1999-2004 and 2009-2014 periods. During these times, incumbent governments faced political challenges.
“We think that the government should continue to stay on the path of investing, achieve moderate to high real GDP growth, and keep inflation in a moderate level and that's what will ensure that the bottom 20% per capita income or the income growth will be strong enough and bring them back to power.”
Read Here | Modi 3.0: Sitharaman likely to prioritise inflation, private investment, rural distress, and tax reforms
Ahya highlighted the need for significant labour reforms, which he believes are more critical than land reforms. Improving farm productivity and enabling the migration of farm workers to urban areas is crucial for growth.
However, current labour laws are too stringent for small and medium enterprises (SMEs), making it difficult for them to absorb migrant workers.
Reforming these laws could help achieve an ideal growth rate of 8-10%. Without major reforms, Morgan Stanley predicts a GDP growth rate of 6.5% over the medium term.
Ahya also expects investment growth to surpass consumption growth in the next five years. “In our view, to ensure that GDP grows at 6.5-7% sustainably without having macro stability risks, you need the growth story to be driven by investment and even when we are talking about the trickle-down effect and the job creation needs, it is always in sync with what happens to the investment line. So I don't think that the government deviates from it.”
He believes that urban consumption will likely grow faster than rural consumption.
Ahya expects the US Federal Reserve to start cutting rates from September.
This expectation is based on projections that the next four inflation reports will show a core personal consumption expenditures (PCE) rate of around 0.2% month-on-month, leading to an annualised rate of 2.4%.
Such consistent inflation figures below 2.5% would likely prompt the Fed to begin reducing rates.
Also Read | What’s stopping foreign funds from returning to India? Morgan Stanley’s Ridham Desai explains
Morgan Stanley believes that policymakers will continue to focus on boosting private investment.
Speaking to CNBC-TV18, Chetan Ahya, Chief Economist - Asia and EM at Morgan Stanley said they do not expect any major reversal in policy for the next 2-3 years.
He believes supply side reforms will remain the best approach to maximising social welfare.
Maintaining macro stability, controlling inflation, and encouraging investment growth and job creation, Ahya says, are crucial for political success and economic well-being.
He noted that real incomes for the bottom 20% improved by only 1.3% during the 1999-2004 and 2009-2014 periods. During these times, incumbent governments faced political challenges.
“We think that the government should continue to stay on the path of investing, achieve moderate to high real GDP growth, and keep inflation in a moderate level and that's what will ensure that the bottom 20% per capita income or the income growth will be strong enough and bring them back to power.”
Read Here | Modi 3.0: Sitharaman likely to prioritise inflation, private investment, rural distress, and tax reforms
Ahya highlighted the need for significant labour reforms, which he believes are more critical than land reforms. Improving farm productivity and enabling the migration of farm workers to urban areas is crucial for growth.
However, current labour laws are too stringent for small and medium enterprises (SMEs), making it difficult for them to absorb migrant workers.
Reforming these laws could help achieve an ideal growth rate of 8-10%. Without major reforms, Morgan Stanley predicts a GDP growth rate of 6.5% over the medium term.
Ahya also expects investment growth to surpass consumption growth in the next five years. “In our view, to ensure that GDP grows at 6.5-7% sustainably without having macro stability risks, you need the growth story to be driven by investment and even when we are talking about the trickle-down effect and the job creation needs, it is always in sync with what happens to the investment line. So I don't think that the government deviates from it.”
He believes that urban consumption will likely grow faster than rural consumption.
Ahya expects the US Federal Reserve to start cutting rates from September.
This expectation is based on projections that the next four inflation reports will show a core personal consumption expenditures (PCE) rate of around 0.2% month-on-month, leading to an annualised rate of 2.4%.
Such consistent inflation figures below 2.5% would likely prompt the Fed to begin reducing rates.
Also Read | What’s stopping foreign funds from returning to India? Morgan Stanley’s Ridham Desai explains
(Edited by : Shweta Mungre)
First Published: Jun 12, 2024 2:21 PM IST
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