Transformation: India now a key driver for Asian and global growth
Virendra Pandit
New Delhi: Global investment banking major Morgan Stanley said on Wednesday that India of 2023 is different from what it was in 2013 and is set to emerge as a key driver for Asian and global growth.
The South Asian country has significantly transformed in several areas since 2014, the media reported Morgan Stanley as saying.
“In a short span of 10 years, India has gained positions in the world order with significant positive consequences for the macro and market outlook,” it said.
Commenting on overseas investors’ skepticism about India, that it failed to deliver its potential—despite being the second-fastest economy and among the top-performing stock markets over the last 25 years—it said, such a view ignores the significant changes that have taken place in India, especially since 2014.
The Morgan Stanley report highlighted the 10 big changes, including supply-side policy reforms, formalization of the economy, Direct Benefit Transfer (DBT), Insolvency and Bankruptcy Code (IBC), focus on FDI, and flexible inflation targeting. These changes took place because of India’s policy choices, and their implications for its economy and market.
Now, the investment banker expects a new cycle in manufacturing and capital expenditure (capex), as the share of both will rise in GDP and estimated that India’s export market share will rise to 4.5 percent by 2031, nearly twice from 2021 levels, with broad-based gains across goods and services exports and there would be a major shift in the consumption basket.
“As India’s per capita income increases from USD 2,200 currently to about USD 5,200 by FY2032, this will have major implications for change in the consumption basket, with an impetus to discretionary consumption,” it said.
According to the report, inflation would remain benign and less volatile, which would imply shallower rate cycles and a benign trend in the Current Account Deficit (CAD).
The share of profits in GDP has doubled from all-time lows in 2020 and is set to rise further, maybe even double, from here leading to strong absolute and relative earnings, it said, adding, this explains India’s apparently rich headline equity valuations.
As India’s reliance on global capital market flows has reduced, the market’s sensitivity to a US recession and US Fed rate changes also seems to be fading, it added.
A global recession, a fragmented general election outcome in 2024, a sharp rise in commodity prices because of supply outages, and shortages in skilled labor supply are key risks to India’s growth, it added.
