New Delhi: India has “transformed” over the past decade on a wide range of economic metrics, including supply-side reforms, formalisation of the economy, real estate regulations, and social sector transfers, among others, a report by financial services company Morgan Stanley has found.
“We run into significant skepticism about India, particularly with overseas investors, who say that India has not delivered its potential (despite it being the second-fastest-growing economy and among the top-performing stock markets over the past 25 years) and that equity valuations are too rich,” the report, released on Monday, said.
It added: “However, such a view ignores the significant changes that have taken place in India, especially since 2014.”
Based on its analysis, Morgan Stanley made a few predictions about the Indian economy, both domestically, and also with regard to its relation with the global economy.
“We expect a new cycle in manufacturing and capex [capital expenditure], as we estimate the share of both to rise in GDP [gross domestic product] by approximately 5 percentage points by 2031,” the report said. “We estimate that India’s export market share will rise to 4.5 per cent by 2031, nearly 2x [double] from 2021 levels, with broad-based gains across goods and services exports.”
Notably, the report said that, as India’s reliance on global capital market flows has reduced, its stock market’s sensitivity to incidents in the US, such as a recession, or a rate change by the US Federal Reserve, seems to be fading.
The risks to India’s overall growth story, Morgan Stanley said, were a global recession, a “fragmented general election outcome” in 2024, sharp rise in commodity prices due to supply outages, and shortages in skilled labour supply.
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Changes since 2014
Talking about the changes that have taken place in the Indian economy since 2014, the report pointed out that on the supply side, following cuts implemented by the government in 2019, India’s corporate tax rate was “at par with peers” such as China, Indonesia, South Korea, Malaysia, Japan, Thailand, Vietnam, and Singapore, among others.
The report also highlighted that the pace of infrastructure creation has picked up over the past eight years, compared to the previous eight years. For example, the Morgan Stanley report said 53,700 km of national highways were built between 2014-15 and 2022-23, significantly higher than the 25,700 km built in the 2005-06 to 2013-14 period.
Similarly, it showed that the broadband consumer base had increased by 771.3 million people during the past eight years, compared to 58.9 million in the previous eight years.
A total of 95.7 gigawatts (GW) of renewable energy capacity was installed in the country between 2014-15 and 2022-23, compared with an incremental 25.7 GW having been installed between 2005-06 and 2013-14.
With regard to the formalisation of the economy, Morgan Stanley pointed to the consistent increase in tax collections under the Goods and Services Tax (GST), and also pointed out that digital transactions as a percentage of GDP have increased to 76.1 per cent in 2022-23, from just 4.4 per cent in 2015-16.
Morgan Stanley’s data also shows that reforms like the Real Estate (Regulation and Development) Act, 2016 have given the real estate sector a huge fillip, with both new launches and new sales of property rising to about 75,000 units and 60,000 units, respectively, by the first quarter of 2022-23. This is compared with about 50,000 new launches and 41,000 new sales in the second quarter of 2014-15.
On social transfers, Morgan Stanley did not provide granular data, but instead showed a graphical trend of how, although the number of cash transfer and kind transfer schemes have reduced, the actual amount of cash and kind being transferred to the needy has increased manifold over the last 10 years.
The report further said that, as India’s per capita income increases from $2,200 currently to about $5,200 by 2031-32, this will have “major implications for change” in the consumption basket, with push for discretionary consumption.
“Triggered by supply-side reforms by the government, we expect a major rise in investments, a moderation in the current account deficit and an increase in credit to GDP to support the coming profit growth,” the report added.
(Edited by Poulomi Banerjee)
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