In a recent report, global financial services firm Morgan Stanley has commended the leadership of Prime Minister Narendra Modi and praised India’s remarkable progress on the global stage.
Titled “India Equity Strategy and Economics: How India Has Transformed in Less than a Decade,” the report highlights India’s positive macro and market outlook, crediting the country’s swift rise in the past 10 years.
Morgan Stanley predicts that India will emerge as a key leader among Asian nations, contributing significantly to global development in the next decade.
India’s Growth Potential and Transformative Reforms
While acknowledging India’s status as the world’s second fastest-growing economy, the report sheds light on the underperformance of the country’s stock markets in the past 25 years.
However, the analysis overlooks important changes that have occurred, particularly since 2014.
Morgan Stanley identifies ten significant developments, including supply-side policy reforms, the formalization of the economy, the Real Estate (Regulation and Development) Act, digitalization of social transfers, the Insolvency and Bankruptcy Code, flexible inflation targeting, a focus on foreign direct investment (FDI), the “India 401(k) Moment,” government support to corporate profits, and high multinational corporation sentiment.
Key Milestones and Improvements
The report highlights several important milestones in India’s transformation. It notes that the corporate tax rate has remained below 25% for a decade, with a rate of 15% for newly incorporated companies before March 24.
Furthermore, the nation has witnessed significant progress in infrastructure development, including national highways, broadband connectivity, renewable energy initiatives, and electrified railway routes.
India’s Role in Global Growth
Morgan Stanley emphasizes the consistent growth of India’s Goods and Services Tax (GST) collection and the remarkable expansion of digital transactions in the past decade, which have contributed to economic growth.
The report predicts that India will account for approximately one-fifth of global growth by the end of this decade.
Moreover, it suggests that India’s GDP and productivity growth will be favorable compared to other countries.
Anticipated Effects of Changes
The report anticipates a continuous increase in manufacturing and capital expenditure (capex) as a percentage of GDP, with a projected 5% rise by 2031.
It also foresees a doubling of India’s export market share, estimated to reach 4.5% by 2031—nearly twice the level of 2021.
As India’s per capita income is expected to rise from $2,200 to approximately $5,200 by FY 2032, there will likely be significant changes in the consumption basket.
Additionally, the report suggests that inflation will stabilize, leading to a low-interest rate cycle.
India’s current account deficit is projected to maintain a favorable trend, and there will be an increase in profits due to the expanding GDP.
Potential Risks to the Indian Economy
While the report paints a positive picture, it also acknowledges potential risks.
These include global recession, fragmented outcomes of the 2024 Lok Sabha elections, a sharp increase in commodity prices due to supply shortages, and challenges in the availability of skilled labor.
Despite these risks, Morgan Stanley remains optimistic about India’s trajectory and its growth potential in financial services and the energy sector in the coming years.
