The erratic nature of the world gives the subject of Economics a dynamic yet intricate complexion. Although this makes it harder to find definite solutions, it definitely does make the exploration of the discipline very interesting. With the same intention in mind, the Declassified spoke with Mr. Prakash Sakpal, a Senior Asia Economist with ING Bank N.V. and has been active in economic research of the Asia-Pacific countries for over 25 years.
As an expert on the Asian economies, he spoke at length on Asia’s development and economic significance in the world, what makes some of the nations stand out and the pressing circumstances they are grappling with. Read on to find out what Mr. Sakpal has to say about these present-day matters, along with his take on what it’s like to be an Economist among other things.
Question 1. What is one aspect that drew you towards the subject of Economics? How and why did you choose to study and then practice in this field?
Ans: There is no single aspect that drove me to this career. First of all, I would point at circumstances leading to natural learning of this subject. Since childhood, I was participating in my family business and that is how I started learning demand and supply, by adjusting the prices based on these demand-supply forces. Second was my interest in the subject. When I went on to college, I set out to learn Economics as one of the six subjects being offered and I ended up eventually doing my Bachelors as well as Masters in entire Economics. In this manner, the interest was developed along the way. Third is the career prospects this field could potentially offer you. Given this economic background, I thought it would land me in a better position in terms of career. Hence that foundation became beneficial for me. Last but not the least, I would point at the opportunity. Even if one learns the subject, it is not necessary that he will end up being an economist all the time. It is the opportunity that struck me and I grabbed it.
Many would say I did something very irrational back then. As I set on to begin my career, I left a very lucrative job of lecturer in a college and moved on to a low paying job of research assistant, not something that everybody would do considering the relative amount of money you derive out of it. But yes, I took the decision and moved on to becoming a research assistant and eventually grew up to be an economist. Now, I have been doing economic research for over 25 years with ING Bank and am based in Singapore. I started my career in Mumbai as I mentioned earlier. For the first couple of months I worked as a lecturer and then I joined a local research think tank called Centre for Monitoring Indian Economy (CMI). I worked there for 3 years and then I moved to Barings International, one of the world’s oldest British Banks, which went under around the time I started working for it. Luckily for me, the bank was taken over by a Dutch banking group, ING.
Question 2: We know that the work as an Economist varies from every person and every field. By elaborating on your professional life, can you give us a brief idea of what students can expect from daily work as an Economist.
Ans: You said it rightly that the profession of an economist can be different at different places. One could be an academician, a banker like me or could be working in some corporate treasury department. Depending on where you are, what work you do, it differs. For me, being an economist in an investment bank, I monitor the Asia-Pacific economies. I am responsible for four economies in the region – India, Thailand, Malaysia and Singapore. Therefore, the focus is a broader regional focus. We monitor these developments in terms of what they mean for the markets and for our investors and clients.
I begin my day reading economic, political and market-related news on Bloomberg, the BBC and all the financial news that matters for the concerned countries and the markets every morning. I churn those events and developments in my mind, figuring what they would mean for the day ahead, how it would impact the markets, so on and so forth. Office work begins at 7 am, so within an hour, we have to come up with trade ideas that we want our traders to know (through conference calls), which is vital since they rely on our judgments to conduct their trade operations. Post that, we publish our daily reports at 9 a.m. that goes to all our clients world over, giving them an idea of what they should be expecting that day or even a couple of days ahead. It is based on new data released over the course of that day; whether it is any central bank policy meetings or any government announcements like the budget, etc.
So as soon as we see the headlines on Bloomberg or Reuters, we analyse the data, whether it was weaker, stronger or as per our expectations. For example, say we get export data for a certain month. We deduce what it means for the growth in the current quarter or how it could potentially shape the outlook going forward? We methodically analyse it and then send crisp notes to clients. This guides the investors on how they should position themselves keeping in mind the happenings.
Besides this day-to-day work, I also work on ad hoc research notes. These are extremely planned and thematic research undertakings that the entire team contributes to. This entails a more detailed study unlike the daily requirements. Thus, a typical day is long and a lot of work, but nevertheless, very fulfilling.
Question 3: India and China have been leading Asia on the development front. However, a major concern that often crops up is how sustainable is that development in terms of an environmental impact? Do you think that sustainable finance or even conservation finance can be the way forward?
Ans: Sustainability has been gaining more attention globally, for the obvious reason that the impact of human functioning can be directly traced to rapid climate change and the degradation of our environment. Obviously, it’s all over the news- from forest fires in Australia to those in the US. As well as the slew of big typhoons and heavy flooding in India and some other Asian economies amongst other calamities. In all probability these are the gradual aftermaths of climate change, and therefore are drawing a lot of attention towards a more sustainable development going forward. And indeed, it is going to be the way forward.
How quickly, this issue will be addressed, really needs to be seen because this is a very long-term objective. China is one of the rapidly growing economies and also the biggest carbon emitter in the world. What is more unfortunate is that China’s carbon emissions are yet to peak, which the authorities expect to be by 2030. Similarly, India, also a rapidly growing economy until a couple of years ago, has one of the largest amounts of carbon emissions in the world. This of course, isn’t a sustainable way forward.
To address this problem, both nations set targets. After 2030, China expects to turn completely carbon-neutral over the near next three decades, that is by 2060. Likewise, India wishes to cut down its carbon emissions by 1/3rd by 2030 and double the renewable production capacity from current 20% around to 40% over the next ten years. So these are long-term projects that need efficient and consistent planning and implementation.
Last year, the pandemic offered a good opportunity to address these issues because these areas require heavy investment driven targets and stimulus. It was thought that the governments would use this opportunity to guide their economies towards more sustainable development. However, I’m afraid this has not really materialized. When we looked at the details of stimulus provided by each of the Asian countries, we found that actually nothing was actively being done in terms of green initiatives. In China, there was almost 8% to 9% of GDP of fiscal stimulus, the government unveiled last year. But, virtually nothing of that was directed towards fostering sustainable development. Likewise in India, despite the 10% of GDP stimulus hardly anything is being done to achieve the climate goals.
So, though sustainable finance and conservation finance are the need of the hour, they haven’t taken center stage due to the inability to realise their immediate results. It’s just like watching the grass growing. So though ideally it can be a path forward, we can’t be certain that it will be utilized.
Question 4: Over the years, there has been all of this discussion around the Asian Tigers or the Asian miracle economies. What according to you distinguishes these particular industrialised countries (like the Asian Tigers) say from others in Asia on the basis of their development patterns or policies?
Ans: If I had to answer in a single word, I would say- exports. Hong Kong, Taiwan, South Korea and Singapore, were labelled as the four Asian tigers since they were among the first industrialised economies in the Asian region that continued to maintain fairly high growth rates. What these economies did to set themselves apart was that they developed themselves as the world’s manufacturing bases and started supplying whatever they could produce. That export orientation got them to where they are today.
Now, these are not the only ones. Later, subsequently, most of the Asian economies turned towards exporting their products, targeting the rest of the world’s markets for their products. For example, Thailand, the Philippines and of course, China. Since China entered the WTO in 2001, they opened their markets and enjoyed extremely rapid growth of 7% to 8% for over a decade and a half. So, exports proved to be the key to the engine.
Unfortunately, India has become the world’s market instead of the world’s manufacturer. That’s one major reason as to why it’s taking a long time to catch up to China. Although India has the potential, its economy is largely driven by domestic demand. Whereas, export led growth is much faster and more sustainable for developing economies. So the most significant difference would be in terms of their trading patterns, i.e. an export led growth model in the case of the Asian Tigers.
Question 5: Asia is home to more than 50% of the world’s population. Given the rise of fin-tech startups, how do you see them playing an important role in encouraging development and inclusion?
Ans: Asia makes up for 30% of the global economy and the financial markets in the region are the biggest contributors to the markets globally. We are more integrated into the global markets and it has become so complex and interlinked that you cannot set one apart from the other. What happens overnight in the U.S market matters for Asia, and what happens in Asia trickles down to Europe and then back into the U.S. This is how these financial markets are playing a very pivotal role in the global markets.
Now, in terms of fintech and all these data driven developments, there’s faster integration of Asian markets with their global counterparts. Fintechs have added more efficiency to this development process, mainly because they are channeled to very efficient mobilization of capital as well as other factors of production. This eventually helps drive overall economic growth. So, I believe that fintech and all these technological innovations and development have been playing an increasingly important role.
Just look at what happened after the 2016 demonetization in India. Given such a big unorganized sector there, the overall economy took a big hit. Most of the people were adversely affected by demonetization. A lot of people and businesses didn’t even have their proper bank accounts. Yet, at the same time, that was in fact the tipping point for fintech growth in India. Thereafter, you saw big fintechs like PayTm, etc. mushrooming in the country. Currently, there are about 2000 fintechs in India. So, they are going to be the big drivers for India’s growth going forward. Not just India, but this is going to be the new normal globally. Thus, it would only work to integrate the markets further.
Question 6: RCEP (Regional Comprehensive Economic Partnership)— a free trade agreement between Asia Pacific nations – was recently signed. How helpful would it be to the ASEAN economies given that the ASEAN nations already have a free trade agreement among them? Also, what are your opinions on India opting out of the RCEP?
Ans: Obviously the incremental benefits are going to be very less given that many of the Asian Economies are already having bilateral or multilateral trade agreements with the other economies. So, we may not see a big impact that the RCEP agreement is going to have on the member countries. But it is a step in the right direction. It is a step towards free trade. How we benefit out of that is yet to be seen, even though incremental benefits may not be much.
About India opting out of RCEP, it is clearly a decision coming out of competitiveness. The authorities in India are worried about opening their economies to big players like China who would hit local businesses much harder and that clearly goes against the Government’s ‘Make In India’ drive.
But the good question to ask here is, what did India do all these years to increase its competitiveness in the outside world?
India became a part of WTO in 2005, 6 years before China did that. Since China entered the WTO, its economy got a big boost. However, as for India, we haven’t gone much further. Of course we had a good number of years of strong growth after we started opening in the early 90s. Few years ago we were enjoying 6-7% of GDP growth but I don’t think we have done enough to enhance our own competitiveness in the outside world. How much is export contributing to India’s GDP? Probably just 10-15% at the most. It is not much. So, we have just positioned ourselves as the world’s market and not the world’s manufacturing hub. That needs to change.
So, even if India were a part of RCEP I wouldn’t imagine it benefitting a whole lot. On the contrary, maybe authorities are right in thinking that it would face greater competition. But eventually, you have to face it and let the natural economic forces determine where you stand and how you survive, instead of economic policy continuing to determine your economic activities. So yes, I think this needs some political will and probably with that we could progress far better.
Question 7. India was recently in the news for manipulating its currency. What is your take on countries engaging in the manipulation of currency?
Ans: Manipulating currencies is a practice that not only many developing but even developed nations have engaged in. The US Treasury released a report very recently, that is in December 2020, in which India was listed as one of the nations under the US treasury’s monitoring radar for currency manipulation practices. However, this is not new. The decision of a nation as ‘the manipulator’ is taken on the basis of predominantly 3 criteria used, one of which necessitates a large current account surplus. India has seldom had a current account surplus, barring one-off surpluses in some quarters last year (2020), which were the by-product of Covid-induced weak domestic demand and lower oil prices, which are only transitory. Despite this, there has been a rapid rise in India’s reserves in the last couple of years. This is what caught the US Treasury’s attention and the latter placed India on its watch-list for currency manipulators.
The US Treasury, in fact, also labelled Switzerland and Vietnam as currency manipulators. Being a developed country, Switzerland came out and said that it was a choice they made since it was important for their economic health. Whereas, Vietnam, a developing nation, didn’t stand up for itself. So the criticism faced by and global standing of an economy is generally influenced by its stage of development. Hence, it’s clear that countries do engage in currency manipulation and deal with the criticism differently.
As for who is responsible for this practice? It is an issue dealt by the governments and central banks. Whether it is good or not? Obviously it is not a good practice from the efficiency perspective or competitiveness perspective. Because by doing so, they enhance the competitiveness of their exports globally. Ideally this shouldn’t be indulged in the free world. But at a handful of times, it is required from the individual economy’s perspective. Especially in the times when the economy is distressed. It is in times like these when nations resort to such measures to propel their exports globally. The COVID-19 crisis is an apt example of distressing times, when countries feel the need to improve their situation. Therefore, I do think currency manipulation will without a doubt remain a widely utilised practice.
Question 8. What is one piece of advice that you would like to give students who would like to be professionals in the field of economics. Or anything you would wish that we keep in mind or pay special attention to while studying the subject?
Ans: Along with broadening your social horizon surfing through social media, I would suggest students should look beyond their gadget screens and see the reality. Obviously, you don’t find everything in the textbook or online. It is important to have an open mind and develop a perspective about yourself. This is irrespective of the field you choose, since a cultivated mind will excel no matter the situation.
I would also suggest students make it a habit to read newspapers. They help you keep up with the changes in the world. The op-eds, editorial pages and thematic articles provide a variety of information on different aspects of the subject. I personally have always done a lot of newspaper reading, since I’ve never enjoyed reading textbooks. It would broaden the scope of the subject as well as expose you to a variety of interesting and up-to-date ideas.
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