Satyam Panday on the Economic Performance of China and India: Unpacking S&P Global's Recent Emerging Markets Outlook Report

[00:00:09] - [Speaker 0]
Namaste and welcome to Bots by PEI, a policy discussion series brought to you by Policy Entrepreneurs Inc. My name is Kushi Han. And in today's episode, PI colleague Nirjan Rai is joined by Satyam Pandey to unpack his recent S and P Global publication on the economic outlook of emerging markets. Sathyam is the chief US economist at S and P Global Ratings. Until just recently, he was the chief emerging markets economist for S and P.

[00:00:35] - [Speaker 0]
He has also taught at Boston College and Brandeis University and has been a research fellow at the US Congressional Budget Office. Sotyeom holds a PhD in International Economics and Finance and specializes in Macroeconomics, Development Economics and Applied Econometrics. He is also a non resident senior fellow at PEI. Neejeon and Sot Sathyam begin by discussing the key takeaways of the report. They then shift their focus to the economic performances of China and India, especially in the context of post pandemic recovery and the ongoing Russia Ukraine war.

[00:01:07] - [Speaker 0]
Sotiem also offers his take on the short and long term projections for these two countries. They then end the conversation with a discussion on why Nepal has failed to exploit the economic performances of its two neighbors and present some thoughts on what Nepal should do next to leverage their future growth. We hope you enjoy the conversation.

[00:01:32] - [Speaker 1]
Welcome to Pods by PI Satyam. How are things there with you in San Francisco?

[00:01:37] - [Speaker 2]
Thanks for the invitation Nirzan. Glad to be on PODS. Things are rather going well here. Good weather like always in San Francisco.

[00:01:47] - [Speaker 1]
All right, excellent. So shall we dive right into our conversation today?

[00:01:51] - [Speaker 2]
Sure.

[00:01:52] - [Speaker 1]
So today we are here to discuss your analysis on the the economic performances of emerging markets, especially that of India and China. Now I will base our discussion off of a report that you published last month. To start off, could you tell us a bit about the report itself?

[00:02:13] - [Speaker 2]
Sure. Let me start with a quick intro to the S and P Global Ratings itself. I think that would give a good background basis for what we do in this report. You know, S and P ratings, which is, you know, previously known as Standard and Poor's, it provides credit ratings on the bond and debt instruments and those who are unfamiliar about credit ratings, a credit rating is an independent assessment of a company's or government's credit worthiness, right? Assessment of their default risks.

[00:02:52] - [Speaker 2]
So, these ratings range from AAA to D or rank order based on default risk. Basically, you know, when you have a AAA, that's the highest rating assigned by S and P, meaning the debtor has extremely strong capacity to meet its financial commitments. And as you go down the scale, the risk of default increases. So, basically, these ratings, they do consider macroeconomic environment. And given these ratings are inherently forward looking, forecasts of macroeconomic variables going out a few years are needed.

[00:03:28] - [Speaker 2]
You can think about forecasts with GDP growth, inflation, unemployment rates, so on and so forth. And, you know, these macro forecasts in the report that you just mentioned, they come in handy for our rating analysts when they are producing their rating scores for these variety of debt obligations. So, this report that you mentioned has our latest quarterly forecast for emerging market economies and it was published back in the June.

[00:03:57] - [Speaker 1]
Perhaps you could also let our listeners know how you define emerging markets, know things like who they are and what characterizes them as emerging markets?

[00:04:07] - [Speaker 2]
You know, on definition of emerging market itself, there's actually no formal definition as such, strictly speaking. But it's still, you know, emerging markets are generally identified based on, I would say, three key attributes. One, sustained market access. Two would be progress in reaching middle income or upper middle income levels. And three, with greater global economic relevance, right?

[00:04:40] - [Speaker 2]
So, you can think of the size of the country's economy in terms of nominal GDP, its population, its share of exports in global trade matters, GDP per capita, the external debt in global external debt environment, all of that is relevant for the international investor types and looking at all of those indicators, we have come up with 18 countries at S and P as our core emerging market sample countries. Obviously, these are dissimilar countries, the distinction between emerging markets and the developing economies are quite imprecise. But again, we have tried to do the best that we can here. A lot of them are in Latin America, like Brazil and Mexico. And then there are a few in Emerging Europe, Middle East and Africa, you can think of Turkey, South Africa, Saudi Arabia.

[00:05:36] - [Speaker 2]
And then of course we have our China and India and Asia together with a few other Southeast Asian countries.

[00:05:44] - [Speaker 1]
Okay, so before we get into the details of the outlook, maybe we should also have you first draw a picture of the the current scenario of the global economy upon which you base your analysis. So what would you say are perhaps some of the top determinants of the current state of the economy?

[00:06:04] - [Speaker 2]
The current state of the global economy, let's say in a few words, you would be just resilient, especially given the circumstances, right? We've got global growth, inflation, and the uncertainties surrounding all of these, they basically continue to be affected by the what we call long shadow of the Russia Ukraine war, post COVID supply demand rebalancing, and not the least, the restrictive stance of monetary policy, right, especially coming out of the US Federal Reserve, in a world where, you know, dollar plays an important role in trade and finance. It at least appears that the impact for some of these have already either peaked, like the pandemic has already peaked, And, you know, some of the impact from the monetary policy is peaking as we speak. I suppose you could put the Russia Ukraine war still as a wildcard for the balance of risk in the near term, at least. That said, you know, the key points to our own baseline narrative for global growth is one where growth's been uneven, but it is slowing, generally speaking.

[00:07:28] - [Speaker 2]
The service sector has shown quite a bit of resiliency, which has sort of pushed out any of the necessary cyclical slowdown a bit away from what we have thought or anticipated earlier. In the advanced economies, labor markets, they remain quite tight, especially even in Eurozone where the region, the output has actually stalled. In terms of global trade, you know, has basically stalled at the moment, meaning domestically driven economies are outperforming those that are more open to external demand, especially in the emerging market space. Overall inflation, it's falling, which is good for the households, But the core part of inflation, once you take out the energy and food prices, that core has become a bit sticky, which is bad for central banks, you know, central banks generally want to have the core inflation also under control and decelerating from where we were at last year. Policy rates, it seems like they need to rise further for the developed markets and stay there for some time, which in effect basically constrains some of the downward rate mobility in the emerging market space as well.

[00:08:53] - [Speaker 2]
So, all in all, you've got the advanced economies that are looking at a shallower and a longer downturn in the next twelve to eighteen months, which should impact some of the emerging markets that rely on external demand as well. So, bottom line here is, you know, growth's been better than expected in the first half of the year so far, overall, but we see a slowdown for the year as a whole compared to last year.

[00:09:23] - [Speaker 1]
And now that we have the context sorted out, let's get into your analysis of the report. So in your report you highlight the following as one of your key takeaways and I quote, despite better than expected growth in the first quarter, we continue to forecast a sharp slowdown in 2023 for most emerging markets. And you just stated that towards the very end. Now, can you walk us through this analysis?

[00:09:53] - [Speaker 2]
Sure. You know, we expect the real GDP growth to slow sharply this year in most EMs. And, you know, it's quite normal to have sharp slowdown when you saw such a remarkably strong performance last year. Especially for a lot of these emerging markets, we had a nice bump up rebound from the post pandemic opening up last year. And that excludes China and Thailand for last year.

[00:10:23] - [Speaker 2]
But for this year, we're going to see China and Thailand that came out of the post COVID restrictions a little bit late, they are going to be the ones that will see a rise in their growth picture. The rest of the EMs, the countries in Europe, The Middle East and Africa, as well as in Latin America, they're going to grow well below long term trends the next twelve months. Meanwhile, you know, emerging Asia, are, you know, excluding your Chinese economy, they should see a slowdown, but will remain respectable, we think India and countries in Southeast Asia will grow a tad under the longer run trend. So, it's a more mellow slowdown rather than a sharp slowdown for Asia, at least. Again, you know, like I said before, EMs they generally tend to be a varied set of countries with country nuances.

[00:11:24] - [Speaker 2]
But generally, the common theme here is that external conditions will be tough for export reliant countries, with weakened demand from these key major trading partners like US, Eurozone and even China for that matter. You know, China has been the growth engine of the world and its growth target of 5% for this year is, you know, relatively unambitious, right? Post pandemic recovery momentum is also fading for most EMs. And that's not going to provide the same impulse to growth anymore. Prices of energy and food, they continue to be at risk for staying high for longer, given the war in Ukraine, you know, which is an important growth risk for EMs, especially since the consumers in these countries, they tend to spend larger share of their income expenditure on food and energy.

[00:12:23] - [Speaker 2]
So, we see EMs, you know, after this year, you know, after twelve months, basically, EMs gradually returning to their longer run potential growth rates later in 2024 and 2025 as inflationary pressures recede and central banks ease interest rates. In fact, I would say monetary policy has already started to ease, at least it appears to be that way that monetary easing is underway, especially in the likes of those that were already having very high interest rates to begin with, like such as Chile, Brazil, Hungary, those come to mind. Others are also likely to follow suit in the coming months, but most will have an eye on the US Federal Reserve's signals on its own interest rate outlook, especially to protect capital flows and manage exchange rate pressures coming from interest rate differentials with the world's reserve currency.

[00:13:24] - [Speaker 1]
Satya, now let's dig deeper into the performance of the two countries that most of our listeners will probably have a larger interest in. Let's begin with China, and I believe a good starting point here would be to discuss your take on China's post pandemic recovery. So, how do you think China performed in terms of rebounding its economy from the COVID slump?

[00:13:49] - [Speaker 2]
China is an interesting case, because it came out of COVID restrictions late in the game. And the bounce from that lifting of COVID-nineteen restrictions and the reopening of the economy has been surprisingly limited and seemingly short lived, at least in the first instance. China's economy picked up in the 2023. You know, it was led by consumption and services, but that recovery in consumer demand has been weaker than most had anticipated, especially in the recent months. And, you know, we've seen consumer confidence is also recovering only slowly.

[00:14:34] - [Speaker 2]
We just haven't seen the same burst of pent up rebound that we saw in The US and other advanced and emerging economies when they came out of the gates after COVID restrictions were lifted. You know, overall, you've got, you know, unemployment, you know, that has eased in China, meaning unemployment has come down, but we still see the youth unemployment rate has been rising, which has basically soured the already subdued sentiment, you know, that had been coming from the housing market weakness, slower income growth and some pay cuts in some sectors. You know, at the same time, you know, generally, China would have had, you know, robust investment picture with the property sector really picking up, you know, after some stimulus. But this hasn't happened this time around. Confidence has also been weighed down by this continued weakness in the housing sector.

[00:15:39] - [Speaker 2]
Just in general, the investment picture remains muted for now, know, with subdued investment and exports, industrial production momentum has just weakened.

[00:15:49] - [Speaker 1]
What is your forecast with China's economy in the near term? Some have said that the weak data, the Chinese economy has increased pressure for large stimulus measures.

[00:16:00] - [Speaker 2]
Yeah, you know, we revised down our China GDP growth forecast. Now it's 5.2% for 2023,

[00:16:08] - [Speaker 1]
which is

[00:16:09] - [Speaker 2]
a positive in the sense that it is a growth rebound from 3% growth that we saw last year. But, you know, keep in mind that it's very low by historical standards. While consumer demand is likely to continue to recover in the second half of this year, weak exports and confidence will continue to weigh on private sector investment. You know, our view here, our Chinese, you know, economists and you know, analysts have the view that the macroeconomic policy at least is likely to be supportive, but not significantly expansionary, like how it used to be in the past, especially given the indications at the National People's Congress meeting earlier this year. Policymakers are aiming for an organic recovery from the pandemic and, you know, they are keen to contain financial risks and leverage, right?

[00:17:05] - [Speaker 2]
So, we did see a minor interest rate cut just recently, but concerns about major currency depreciation limits the room for more interest rate cuts. Again, a little bit forward looking if there is further setback to growth, or, you know, confidence is coming a low on the next few months still, it would likely trigger some more measures to include increased credit and infrastructure financing type of support, or maybe an easing of house purchasing restrictions and some, you know, fiscal support for certain types of consumption. But I would say that these kinds of support would be very limited and should effectively seen as putting a floor under growth, rather than giving a huge boost to growth, right? So, basically a floor. The biggest near term headache, you know, near term for the policymakers right now in China is a loss in private sector momentum, which is causing weakness in job creation to absorb this rising proportion of young talent, you know, graduating with improved education, global awareness and higher expectations for living standards than their parents.

[00:18:30] - [Speaker 1]
And what do you see the impacts of this having on the other economists that are very reliant on how China is doing?

[00:18:39] - [Speaker 2]
Yeah, you know, just bringing it back to the rest of the emerging markets, least, what would it mean for the rest of them? Basically, you know, especially the growth move that's, you know, sort of going away from your infrastructure and property type sectors, and more on a domestic demand base, you know, consumer type of spending, you know, this is not your traditional growth driver that China used to have, right, pre pandemic. You know, it just means that there'll be less support for growth to the primary resource commodity exporters in the EM space, like some in Latin America, some in Sub Saharan Africa, those who rely on exporting to China heavy iron ores, metals, commodities. So, these exporters, they're not going to enjoy the same form of, you know, export growth as they did in the past. You know, that said, you know, countries that have a larger share of Chinese tourism, you know, some parts of Southeast Asia, you know, especially led by Thailand, for example, they will likely benefit from there's still this pent up travel demand of Chinese households that just hasn't been completely unleashed.

[00:19:59] - [Speaker 2]
So we do think that some of that is going to help at least the Southeast Asian travel economy in the near term.

[00:20:07] - [Speaker 1]
And beyond just the near term for China?

[00:20:10] - [Speaker 2]
Well, near term though, you know, I can't stress enough that this era of double digit real GDP growth of the 2000s and even, you know, six ish and seven ish percent growth in the years before the pandemic are now, you know, it's behind us, right? We should not expect China to be growing like that anymore. China's trend growth itself will slow even as the so called, you know, catch up or the convergence to high income advanced countries will continue in the coming decades, we project the potential GDP growth itself, you know, which is basically the structure of the economy based on the structure of the economy, it's going to ease to about 3.6% by 2030 and close to three ish percent in the next couple of decades on average. But you know, don't get me wrong here, this is a slowdown, but it's a natural inescapable slowdown, right? And it can actually be mostly healthy.

[00:21:18] - [Speaker 2]
We see slower growth as mainly deriving from demographics, rebalancing, convergence and a degree of, you know, decoupling by The US and other economies. I think maybe I should explain a little bit here on these four different points. First, the point that I made on demographics, that's just simply the working age population in China is shrinking. It's just, you know, demographic destiny, moving from a labor surplus economy to a labor shortage economy, right. Secondly, on rebalancing, you know, more broadly speaking, services and consumption will be the keys to driving the economy moving forward more than manufacturing and investment that we had seen in the past.

[00:22:11] - [Speaker 2]
Rebalancing from manufacturing to services and investment to consumption. You know, these are, you know, just to let you know that, you know, in case of productivity growth itself, it's always an everywhere that services tend to be a little bit slower in its productivity growth than manufacturing. So, that itself is also going to impact the growth trajectory. A key objective of all of this rebalancing, of course, is to foster a more innovative economy that relies less on the old drivers of growth and more on, you know, your advanced manufacturing and technology enabled services. This type of rebalancing also calls for lower investment spending on crude resources, heavy infrastructure and construction, and it allows for more of this increased share of growth coming from domestic consumer spending.

[00:23:06] - [Speaker 2]
That's what they're trying to do here by rebalancing. Thirdly, in that point, you know, on the points that I made on convergence, basically the main idea here is that China is getting richer and there is just, you know, diminishing scope for technology transfer and catch up, and especially with in the, you know, sort of those provinces, which are much more richer than the rest. And lastly, an important one, I guess, these days is on decoupling, which is also called the so called the great game of trade and technology tensions with The US, you know, which started even before the pandemic, but it's ongoing, it is starting to become more and more loud in the news cycle. It seems like it will not likely, it's not only likely to slow the Chinese technological progress and impede productivity at least through the next, you know, few years, but also make the slowdown harder to manage. Obviously, this is not to say that it's only China that's going to be bearing the cost, it is, you know, more than China, right?

[00:24:17] - [Speaker 2]
It is both parties here when you are moving away from free trade and technology sharing, they tend to bear the costs obviously. So, yeah, that's basically your beyond the near term prospects for China that we see at least at this point.

[00:24:42] - [Speaker 0]
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[00:25:02] - [Speaker 0]
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[00:25:31] - [Speaker 0]
Now let's get back to the episode.

[00:25:39] - [Speaker 1]
So so now let's move on to the the other country of interest for many of us in the region, India. Now unlike China's, the post pandemic growth story, the Indian post pandemic growth story seems to have a more positive view from many analysts, and this is true also of your analysis. So what would you see have been the key drivers behind India's recent economic growth? And what is your outlook for the Indian economy?

[00:26:06] - [Speaker 2]
Well, you know, India has come out of the pandemic reasonably well, with GDP growth of 7.2% in the fiscal year twenty twenty three. This fiscal year 2023 is basically the way that they do it is it starts in April of the year and goes through March. So, basically fiscal year twenty twenty three would be the year that ended in March 2023, just to be clear. So, it did come out of the pandemic reasonably well. But expansion is likely to cool in this 2024 to about 6% due to global slowdown and you know, some of the lagged effect of policy rate hikes by the Reserve Bank of India.

[00:26:57] - [Speaker 2]
But you know Nirzan even at this rate, India will still be the fastest growing economy in the G20. We've got consumer demand, which is slowing against this backdrop, but again, just slightly and, you know, consumers are still faring better than the rural ones. Agriculture and construction activity has shown, you know resiliency in India so far at least but still you know we think that the agricultural performance in the coming fiscal year may be affected by what we call the El Nino conditions, right. This El Nino just to be clear to the listeners, it's as it's commonly known, it refers to an abnormal warming of surface waters in the Equatorial Pacific Ocean. It's known to suppress monsoon rainfalls basically.

[00:27:51] - [Speaker 2]
So, if that condition is in play, you know, we do think that there may be some underperformance from the agricultural sector in this fiscal. But again, you know, the key here is that beyond this fiscal year, we still expect growth to come in at 7% on strong investment and consumer demand, you know, domestic consumer demand and at the same time, you know, headline consumer inflation should soften to a little bit under 5% than what was a 6.7% last year. I think some of the supply side, you know, inflationary pressures have receded and demand also, you know, the tempering of demand will bring the core inflation down too. We think both inflation and then the rate hike cycle have already peaked in India. We don't expect the Reserve Bank of India to cut rates until early twenty twenty four, since it, you know, first wants to see consumer inflation moving to 4%.

[00:29:01] - [Speaker 2]
That's the center of its inflation target range.

[00:29:05] - [Speaker 1]
Okay and what beyond the near term? It also appears that many analysts are quite optimistic about India's performance in the mid, as well as longer term growth. How do you

[00:29:17] - [Speaker 2]
see that? Yeah, you know, beyond just near term, of course, you know, this is the trillion dollar macro challenge, right, so to speak for India, in the coming ten years and beyond is to turn what used to be, you know, traditionally an uneven growth picture since the liberalization days, you know, back in the early 90s. How do we convert that? How do we transform that into a more high and stable growth trend, right? You know, can India replicate that performance of the, you know, East Asian Tigers over the recent decades and, you know, improve its prospects for the large and growing workforce?

[00:30:02] - [Speaker 2]
You know, there are some structural differences, you know, India versus the East Asian economies and given such differences, I would imagine India will need to follow its own unique path. India's economy is more domestically driven and services oriented compared to the East Asian Tigers. So its path to success will have to be different.

[00:30:25] - [Speaker 1]
Yeah, and what would that desirable path be?

[00:30:29] - [Speaker 2]
You know, my colleagues at work at S and P Global, they just put out a look forward report on India, just the other day, actually, which highlights that, and at the end of the day, it's the capital accumulation that will drive India's economy towards this, you know, desirable path with the government and increasingly the private sector investing in infrastructure and manufacturing. Digital infrastructure especially is another potential driver of high growth but again, having said all that, it's still, you know, going to be service sector that will continue to be the biggest driver, you know, especially driven by the domestic demand, it's a large domestic market, as well as the global outsourcing that it already is plugged into. You know, it's fair to say that many are giddy about India, including, most people that I know and myself, I feel like it is probably about time. And we have seen some of the things already happening, physical infrastructure, for example, is improving connectivity and lowering logistics costs for industries. The authorities, you know, they've been sort of been very much in the game of, you know, unlocking some of the productivity enhancing, you know, outcomes, you know, that comes from infrastructure and logistics development that, you know, eases bottlenecks in the economy, you know, labor laws and the land acquisition process, those have also been gradually eased.

[00:32:21] - [Speaker 2]
You can think of digital infrastructure, which will continue to speed innovation, improve payment systems, and you know reduce leakages from government subsidy transfers as well. You know, moreover, you know, this is the time you know India has used its G20 presidency to highlight its digital public infrastructure success and to encourage action on enhancing some of the financial inclusions for other countries as well. So, these are some steps that really, some concrete steps that they have taken that does give me more confidence that maybe this is the time that they will definitely, you know, have a sustained period of stable growth. You know, when you look at manufacturing, I think the boom in Indian mobile phone production provides a template for the future policies in other sectors as well. India's policy intervention in the smartphone, if you remember just a few months back, you know, that sector has illustrated its ambitions for manufacturing as a conduit to service the domestic market as well as its geopolitical aims, right?

[00:33:37] - [Speaker 2]
Especially given smartphones are among the most sophisticated manufacturing products and, you know, just getting those logistics, you know, into your own country. That's just a logical target for any country that's looking to extend its economic development, I think. Anyway, you know, in summary, I would say in a long winded way, but again, this path to success will ultimately depend on India's ability to reap its demographic dividend, right, increase labor force participation including upskilling, you know, some of the skills have to be definitely upskilled, you know, education is important here in order to tap the global supply chains on a higher value chain, boost private investments with structural reforms in land, logistics, labor and you know, competitiveness especially driven by foreign direct investments and in all of this geopolitics could provide considerable tailwinds.

[00:34:43] - [Speaker 1]
You mentioned geopolitics and this is something that I would like to dig a little deeper into. Now we all know, you know, and you've mentioned this as India being quite ambitious, especially of late in terms of projecting itself as a global player. One might even say it considers itself as an important node in a in a multipolar world. Right? So so how do you see India's growth in this context of ability to exploit the new global geopolitics emerging from the competition between the West and China?

[00:35:16] - [Speaker 2]
You know, I'm not a political economist or a political analyst. But what I can tell, at least from my own conversations with folks who know more than I do, is that, you know, geopolitics can cut both ways, right? It appears at least right now that the country, you know, India is in a good geopolitical position, which will help it benefit from the supply chain diversification, the French shoring that we have started to see as policy driven specific agendas coming out of the West and you know against or you should say sort of competing with China but still you know these geopolitical volatility can be a challenge too right. It appears at least right now you know India is pursuing somewhat of a pragmatic approach, if I'm not mistaken, by cooperating and competing to serve its own national interest. But, you know, it also means, you know, we shouldn't think that it's not going to be challenging.

[00:36:32] - [Speaker 2]
Does have to navigate some changing partnerships and evolving landscape and on top of that for any economist, you know, deglobalization and, you know, some of the protectionist measures that it comes with, those should be creating headwinds for exports growth. It just creates a little bit more of, inefficiency than what it would otherwise happen. But again, having said that, trade partnerships maybe in terms of French shoring or staying neutral, those kinds of trade partnerships should help to mitigate some of these effects.

[00:37:16] - [Speaker 1]
Okay excellent. So Satyen, now we're coming towards the end of our conversation today and for the next two questions that I have for you, I'd like to take you away from your report and and ask you to respond as a Nepali and as an economist who looks at global economic performances. Now you know that our Nepali development narrative has revolved has revolved around exploiting or or rather having failed to exploit the economic performances of our two giant neighbors. So as someone who understands the economic characteristics of Nepal and someone who studies extensively the past, the present, and the future growth of Nepal's two neighbors, China and India. I'm keen to hear your thoughts on why Nepal has not been able to ride the coattails of these two economies.

[00:38:12] - [Speaker 1]
Let's begin with China. So asking frankly, is it just our lack of capacity or are there peculiar characteristics of the Chinese growth model that has made it difficult for countries like Nepal to exploit? And as you look into the future of China's growth, and we've discussed some of these earlier, do you see as some of the do you see specific opportunities opening up that Nepal could potentially exploit?

[00:38:42] - [Speaker 2]
Yeah. As a regular observer of the Nepali economy and you know, what I understand, you know, I think it's partly true that it's our own capacity or the lack thereof and also it's true that the Chinese growth model in the past was just not conducive for the Nepalese economy to you know sort of reap the comparative advantage out of right. If you remember the Chinese growth model was heavily reliant on infrastructure and export led development, right infrastructure investments that require tonnes of natural resource based exports to that country. So, basically China was importing a lot of, you know, iron ores and, you know, copper and, you know, coal, which we just don't have the ability to provide you know if you think of Chile which just happened to be a huge copper producer they reap the benefits of that right that industrial growth of China. If you think of South Africa or some sub Saharan African countries, they had those, you know, primary natural resources, those primary commodities that is needed for such large infrastructure developments that China went through and then on the export side of things, Chinese you know manufacturing exports was based on very cheap labor you know to be frank and we just could not you know compete with that either.

[00:40:25] - [Speaker 2]
So, all in all, it just wasn't, you know, both our capacity as well as the Chinese growth model itself, but just not conducive for us, you know, it was just not favorable for the Nepalese economy, I think. And then, you know, moving forward though, I think some of the changes, some of the rebalancing that China wants to do and is in the path of it may actually be more conducive to Nepal especially given now that the Chinese economy itself is of a higher income and so those labor wage gaps have also closed, you know, we might just be able to be more competitive with them and, you know, we could be actually, you know, providing some consumer based goods, which is why they want to increase the consumer demand, the internal domestic demand. And we could also be providing more on the tourism services sector now that the Chinese, you know, population is much richer than before, they want to go out, they want to visit new places and I think Nepal could be one of those. I think we've already seen some of that happening but it could be a lot more than what we have seen lately and so that would actually play into our own comparative advantage as well.

[00:41:52] - [Speaker 2]
But all in all, you know, outside of trade, there are, you know, the other side of the coin is the capital flows, the access to the Chinese capital would be another one, you know, we do need some foreign direct investments into a lot of these infrastructure projects and other things that we are trying to, you know, advance in Nepal. I think the Chinese surplus savings and some of their investment funds could definitely help be channeled towards our own development purposes.

[00:42:26] - [Speaker 1]
Okay and shifting the conversation to the South, why hasn't Nepal been able to exploit India's growth? And and as India positions to become a player in in the global economy, which you seem to be very fairly optimistic about, what are your thoughts on how Nepal should position to exploit India's growth in the coming days?

[00:42:49] - [Speaker 2]
This is also a tough one to answer, you know, I'm not so sure exploiting how, but you know, what we have seen around the world at least, is that if a smaller country can plug itself into some form of the industrial complex of a larger you know, neighbor like Mexico with US or even it doesn't have to be right next door neighbor it can be even you know just friends of distance like the German vehicle you know industrial complex is plugged into South Africa for example. We could potentially try to you know make some you know rules of the game change so to speak in order for the Nepalese manufacturing base to be plugged into what India is trying to do in its you know medium to long term which is get into the band increase the share of manufacturing, increase the share of high you know AI related some of those service sector as well where maybe our own engineers and you know, highly educated workforce you know, some of whom we already have, I know they can get plugged in as well but again at the end of the day, I think for Nepal, we still need to have a lot more, you know, upskilling in the labor force just like how India needs to do for itself.

[00:44:26] - [Speaker 2]
You know I think Nepal has the same problem lots of upskilling is needed. The speed of infrastructure development including power supply you know is quite key for us you know of the urbanization rates I think Nepal still has a relatively low urbanization rate which needs to change in a more sustainable manner obviously but all in all it's you know, it's a rather something that our own policy makers need to have sort of a diplomatic way of, you know cutting some deals with the Indian policymakers you know get into that financial and industrial complex that India is trying to you know expand for its own economy. Yeah, you know, and it should be easier for us, I think, at least to be in the cocktails of India rather than China, right, just because given some of the similarities in languages and the open border systems that we have, I would imagine it's much easier to be you know sort of going parallel with the Indian you know economic growth for the next you know decade if it would really happen then not. The one downside though I do see is then you are reliant on the Indian side of things and often in the past, you know, it has been reminded to us that it's better to be a diversified economic model rather than just a one country reliant model.

[00:46:22] - [Speaker 2]
So, that sort of gives me pause but still I think we should be able to somehow you know get some of that growth impulse from the Indian you know growth moving forward as well.

[00:46:38] - [Speaker 1]
Yeah, this is indeed the billion dollar question for our development story but thanks for taking a stab at what you think we should be doing. Well that's all for me today Sapkim. Is there anything else you'd like to convey to our listeners? Maybe give a few insights from your work? Anything you have for?

[00:47:01] - [Speaker 2]
No, you know, this was a very nice way to, I guess, end my, you know, engagement as the Chief Economist for Emerging Markets at S and P. I just recently got moved to a new position now I will be heading The US and Canada economies, you know, a lot to do there, of course, as you know, from the energy transition and AI related, you know, policies that have been, you know, put in place by the American legislators. And then you've got the China US decoupling, ongoing decoupling agenda, but it should keep me busy, all of that. Very happy that you you had me here. My my last words on the EMs, at least for some time to come.

[00:47:51] - [Speaker 1]
Alright. Congratulations on on your move, and and hopefully, we'll have some time in the coming days to bring you on board once again to Pods by PI to discuss how the economy is featured in the upcoming US elections. But with that, we have come to the end of our episode. Thank you, Satya, for this very insightful conversation and for accepting our invitation to be part of Pods by PI.

[00:48:16] - [Speaker 2]
Thanks for having me, Nirjan.

[00:48:19] - [Speaker 0]
Thanks for listening to Pods by PI. I hope you enjoyed Nirjan's conversation with Sathyam, where they unpacked his recent publication with the S and P Global on the economic outlook of emerging markets. Today's episode was produced by Nirjoon Rai with support from Hivesh Sapkota, Sonia Jimmy, and me, Kushi Han. The episode was recorded and edited by Neejun, and our theme music is courtesy of Rohit Shakyo from Zindaban. If you like today's episode, please subscribe to our podcast.

[00:48:48] - [Speaker 0]
Also, please do us a favor by sharing us on social media and leaving a review on Spotify, Apple Podcasts, Google Podcasts, or wherever you listen to the show. For PEI's video related content, please search Policy Entrepreneurs on YouTube. To catch the latest from us on Nepal's policies and politics, please follow us on Twitter tweet2pei, that's T W E E T followed by the number two and PEI, and on Facebook policyentrepreneursinc. You can also visit pei.center to learn more about us. Thanks once again from me, Kushi.

[00:49:23] - [Speaker 0]
We will see you soon in our next episode.