Transcript: Big business bets on Modi

This is an audio transcript of the FT News Briefing podcast episode: ‘Big business bets on Modi’

Sonja Hutson
Good morning from the Financial Times. Today is Friday, April 19th, and this is your FT News Briefing.

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Netflix had a killer first quarter. US inflation caused headaches for global markets. Plus, India’s elections begin today. We look at how big business is fuelling Narendra Modi’s campaign. I’m Sonja Hutson and here’s the news you need to start your day.

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It looks like Netflix’s crackdown on password sharing is still paying off. The streaming service reported first-quarter earnings yesterday. Its operating income surged 54 per cent and it added more than 9mn subscribers. Netflix said it will stop disclosing subscriber numbers starting next year, even though investors really like them. The company said it’s focusing instead on the amount of time subscribers spend on the service. It also wants to develop new revenue sources like advertising.

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It was a bit of a rocky week for markets. We got even more signals that the US Federal Reserve is going to wait longer to cut interest rates. I’m joined now by the FT’s Tommy Stubbington to talk about how that bad news rippled across global markets. Hey, Tommy.

Tommy Stubbington
Hi, there.

Sonja Hutson
So let’s start with the US. What did we learn about inflation and the possibility of rate cuts?

Tommy Stubbington
Well, the Fed chair, Jay Powell, this week said that it’s going to take a little longer for the US central bank to bring inflation back to its 2 per cent target. This is really because the US economy is just so strong right now. We had a US retail sales report earlier in the week, which what caused markets to freak out. You know, people just think demand is so strong in the US that inflation will stay higher for longer. And that means rates won’t be coming down. Now that is a huge turnaround from the assumption at the start of this year, which was the Fed’s won its battle with inflation, rates will come down six or maybe even seven times. Now the market thinks one or two rate cuts this year is a huge (inaudible) for global investors.

Sonja Hutson
Is that turnaround big enough that we could maybe even see a rate hike at some point this year?

Tommy Stubbington
I mean, look, it’s not the base case assumption of most investors in markets at the moment. But you know, people are certainly talking about it. I mean, you have to ask the question, if you’ve got a further shock to inflation. Now, could that come perhaps from an escalation of conflict in the Middle East? You could see problems with supply chains. You could see energy prices going up. Yeah, maybe that makes the Fed’s life even more difficult. And at some point, people will start to think about maybe actually the next move is up and not down.

Sonja Hutson
So, Tommy, this news out of the US really hurt European markets, even though eurozone inflation is actually looking really good. It was down to 2.4 per cent last month. What are European investors so worried about?

Tommy Stubbington
So European investors are looking across the Atlantic at what’s going on with the Fed. Now as you say, it’s true that their own central bank is far closer to declaring victory in its own battle with inflation. But they can’t afford to ignore the news coming out of the US economy and coming out of the Fed. Now, that doesn’t necessarily mean that the ECB won’t cut rates this year. But if, for example, the Fed ends up not lowering interest rates at all this year, it’s pretty hard to see the ECB delivering all of the cuts that are currently priced in. So I think central bankers always have to pay attention to what other central banks are doing. And with the Fed, you know, they’re the most influential central bank on the planet.

Sonja Hutson
Now, there was also some trouble in Asian currencies this week. What was going on there?

Tommy Stubbington
Well, so the other impacts of this move in US rate expectations is it boosts the dollar. That is in turn pushing down exchange rates, particularly in Asia at the moment. So we’ve seen the yen. Very, very weak, and it’s been at its weakest level since 1990. This week we saw an all-time low for the Indian rupee. And what that resulted in was a, you know, kind of pretty unusual joint statement from Janet Yellen and her counterparts, the finance ministers in Japan and Korea, basically saying we’re watching carefully what’s going on in global currency markets and kind of acknowledging the disquiet in those economies about how quickly their currencies have depreciated against the US dollar. Now, there’s an open question as to how much they can actually do about this. But I think the mere fact that you have, you know, three finance ministers banding together for this joint statement shows that there’s a real concern about the speed of currency depreciation. And I suppose the potential that has to fuel inflationary pressures in those economies in Asia.

Sonja Hutson
And what are you going to be looking out for the rest of this year when it comes to markets and inflation?

Tommy Stubbington
Well, everybody is going to be absolutely glued to monthly inflation data releases, particularly in the US, but also in other big economies in the eurozone, in the UK. And then I think other economic indicators, like the strength of the labour market is obviously key to all of this. What happens to the oil price, whether events in the Middle East were the cause, that’s (inaudible) a, you know, a sudden shutting off of oil supplies that sent the price spiralling higher. Those kinds of things could feed into the inflation narrative as well. So there’s plenty for investors to be looking out for.

Sonja Hutson
Tommy Stubbington is the FT’s markets news editor. Thanks, Tommy.

Tommy Stubbington
Thank you very much.

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Sonja Hutson
Polls open in India today and voters will cast their ballots over the next six weeks. Prime Minister Narendra Modi and his BJP party are expected to win. One group backing Modi is the business community, and if he gets a third term, they’re going to want even more from him. I’m joined now by the FT’s Mumbai correspondent, Chris Kay. Hi, Chris.

Chris Kay
Hi.

Sonja Hutson
So, Chris, why are Indian businesses backing Modi so strongly ahead of this election?

Chris Kay
Generally speaking, you know, executives and investors that we’ve spoken to do see Modi as one of the most pro-business leaders that India’s ever had. And Modi has been really basking in the praise over the last few months at various business summits. So Mukesh Ambani, Asia’s richest man, called him, quote, the most successful prime minister in India’s history in January.

Sonja Hutson
OK, so as far as business people in India are concerned, what are Modi’s main achievements since he’s been in office?

Chris Kay
Yeah. So early on, Modi really eased a number of restrictions on foreign investment in certain sectors. He also pushed through a number of landmark pieces of legislation, including a bankruptcy code and simplified national goods and service tax. And businesses have obviously been very happy that he slashed corporation tax from 30 per cent to 22 per cent. And more widely, they liked his focus on upgrading India’s infrastructure, laying out new highways, for instance. Digital infrastructure has really boomed as well. You’ve seen an easing of payments flows from that and cutting out leaching middlemen. So those have all been really achievements they’ve spoken about.

Sonja Hutson
So given all that, what else do these businesses want?

Chris Kay
Yeah. I mean, many of the businesses and investors we spoke to would still argue that tax is still a major issue. It’s still a very complex system. Many firms still find themselves on the end of surprising charges, which are very hard to dispute without ending up in India’s court system, which is really badly clogged, and where business disputes can take many years to resolve. And beyond that, you know, acquiring land and clearances from India’s 28 states can be very difficult. It’s kind of navigating some of the 400 labour laws that companies have to contend with. Modi’s government, to his credit, does listen to feedback from business, but it has been known to tweak rules and regulations abruptly in response to that, which some companies grumble make it hard to make long-term plans.

Sonja Hutson
OK, so you said that Modi has been pretty responsive to what these businesses want. What has he promised to do if he’s re-elected?

Chris Kay
The prime minister has repeatedly said over the last few months to expect bigger things from his third term. And Indian officials have told us privately that he is still concerned about the ease of doing business. The BJP’s manifesto was released last weekend. There were a few things that were relevant to companies and investors. Some specifics, like the plan to create fast track courts, which could speed up litigation. But on the whole, it was devoid of really precise details of, you know, when, how and what will be done to really ease some of these existing restrictions.

Sonja Hutson
Right. Well, can he actually deliver on these promises?

Chris Kay
Well, that’s a big question. And with polling so notoriously sketchy in India, it’s hard to say what the results may look like. I think, obviously, the overwhelming consensus from analysts is that Modi’s BJP is certain to win, but it’s unclear whether they will get a plurality or something like a two-thirds majority to make changes to India’s constitution. Now, that’s really key. So while Modi, in an interview with the Financial Times last year, dismissed talks about amending the constitution, obviously if the new government is able to make changes to its, then yes, arguably it will be much easier for him to ram through some of these reforms.

Sonja Hutson
Chris Kay is the FT’s Mumbai correspondent. Thanks, Chris.

Chris Kay
Thank you.

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Sonja Hutson
Before we go: it is not easy being green. South Korea is now requiring company cars worth over $57,000 to have a neon green licence plate. They’re meant to cut down on business owners using company cars for personal use. And this strategy of public shaming seems to be working. Sales for foreign luxury cars in South Korea are down since the rule took effect this year. Bentley sales even dropped 77 per cent in the first quarter, and analysts are blaming it on the neon green.

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You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news, and make sure you stick around after the credits to hear about a new mini-series from the Money Clinic podcast. The FT News Briefing is produced by Kasia Broussalian, Fiona Symon, Marc Filippino and me, Sonja Hutson. Our engineer is Monica Lopez. We had help this week from Denise Gura, Cara Schillin, Jess Smith, Katya Kumkova, David da Silva, Michael Lello, Peter Barber and Gavin Kallman. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. And our theme song is by Metaphor Music.

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