Morgan Stanley’s Chetan Ahya confidence in India’s 6.5% development target – CNBC tv18

Morgan Stanley’s main Asia economist Chetan Ahya expressed confidence in India’s ability to achieve a 6.5% GDP (GDP) development target for 2025. He said that global trade stress and increase in tariffs on China may withstand some external challenges, the broader trade environment is not expected to be so unfavorable during 2018-19. Ahaya said that the export of India’s quick services, which has recently increased to an annual $ 375 billion with a 15%growth rate, would be important in reducing external risks.

In an interview with CNBC-TV18, he further mentioned that domestic factors, including fiscal and monetary policy measures, would support development. The government is likely to promote economic activities for high capital expenditure and liquidity injection expectations and expectations of rate cuts by the Reserve Bank of India (RBI).

Below is the word transcript of the interview.

Question: Unlike the apprehensions, US President Trump did not declare tariffs on the first day of his presidential post, but he threatened Tariff on Mexico, Canada and even Europe. He also threatened a possible universal tariff. What is all this for dollars, inflation and federal reserve action, and how will it affect Asia and India? Therefore, due to lack of any concrete announcements on any day, should we believe that it will be a slow grind-up in case of tariffs, nothing big and immediately anything?

A: Prior to the inaugural speech, it was the message that we had, and essentially, it came from the head of our American public policy, who said that you would listen to the announcements quickly, but the implementation of the tariff would slow down. What we heard from the President seemed to be very high in our team’s expectations.

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Question: If this is a slow, phased approach, how will you affect Asia in 2025 including India?

A: Right now, what we have believed is that tariffs will be largely focused on China within the region. For China, we are assuming that the weighted average tariff will increase from 10.5% to 25.5% by the end of 2025. This growth will begin in the second quarter of 2025 and we expect another 10% weighted average growth in 2026, eventually carrying up to 36% by the end of 2026. This is the way we are seeing. With this, we believe that the effect will be much more silent than what we saw in 2018-19.

The important perception we are making is that universal tariffs will not be there, and not all countries in the region will have tariffs. If so, the impact on corporate trust will be more than what we are believing in our base case. This is a wide summary.

In terms of the implications of development, we currently have a forecast of regional development for decline from 4.5% to 4.1% in 2025. A large part of it is due to negative effects on the area caused by tariffs and business stress.

Question: But it does not take into account the possibility of universal tariff and is there a huge decline in business confidence?

A: This is the risk landscape. We are seeing two risk landscapes, effectively: one where there is a universal tariff and the other where it is not a universal tariff, but bilateral disputes are so many that they effectively are effective Equal effects.

Question: The fear is that high tariffed goods in the US will lead to high inflation and, therefore, there will probably be no cuts from the fed. What are your views on fed and inflation in America?

A: Right now, in our Aadhaar case, we are expecting to reduce inflation slightly, and so we are forecasting the Fed to cut rates twice in 2025. However, the US team is emphasizing that if tariffs and immigration policies pose a reverse risk for American inflation, inflation will need to adjust their course accordingly. But just focusing on the tariff effect on inflation, I would also like to highlight another important factor: currency behavior will be important, as its inflation will be the final implications for approach.

In 2018-19, the US-Vated average tariff increased by 2.7%, but the trade-waste was 10.3%appreciation. Therefore, if you look at the facts, the US core goods inflation declined, and the US import price index collapsed after the tariff was imposed on China. This would be another important variable for monitoring in terms of mudra dynamics.

Question: What is your currency expert telling you? We have already seen Yuan appreciated after lack of any announcement; It has come down from 7.3 to 7.27. How much does your team expect the yuan expect to depreciate, and therefore, how much depreciation can occur in the rupee?

A: At this point, our base case is that tariffs on China will increase. Right now, of course, there is no clear indication when those tariffs will be raised. But in our Aadhaar case, assuming the tariff path I mentioned earlier, we hope that the yuan will be reduced by 7.6 by the end of 2025. It will probably be lucky for other currencies of the region, as well as a significant role in the regional region, given the important role of China in the regional region. economy. The region has extensive trade relations with many countries, so we hope that the entire group of currencies is expected to see some depreciation.

The Indian rupee (INR) will experience less depreciation compared to the Chinese Yuan, but it will still reduce the sympathy with the yuan to some extent.

Question: On India, do you still stick to the forecast of the 6.5% increase that you provided earlier this month? Or do you think that both global headwinds and consumption can lead to low growth in 2025, the more you guess?

A: Our Aadhaar case believes that there are no aggressive universal tariffs in the entire region. In that scenario, you will probably not see a significant impact on global corporate belief, global development or global trade. This means that there is some negative risk for India from the external environment due to tariff growth on China. However, because there is no comprehensive trade tension, it will prevent the external environment from becoming as challenging for India as it was in 2018-19. With that perception, we believe that India can still achieve its 6.5% GDP growth.

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While we are talking about business tension and their implications for goods and exports to India, exports of services have increased rapidly and have become meaningful in size. On an annual basis, they are about 375 billion dollars, and these exports are growing at an average rate of about 15% in the last three months, which is much higher than this. Therefore, in the last three months, we have seen a significant acceleration in service exports. This is one of the factors that are realizing us that the external environment may not be as challenging for India as it may look.

Additionally, we are expecting fiscal ease, with government capital expenditure. We also guess that RBI will reduce monetary policy by injecting liquidity and cutting rates.

Therefore, these three factors -export of services, fiscal ease and monetary ease, we are confident that the 6.5% GDP development target for India is still achieving.

more to come…

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