In a report titled ‘Why This Is India’s Decade,’ global investment bank Morgan Stanley predicted that India is set to surpass Japan and Germany to become the world’s third-largest economy by 2027 and the third-biggest stock market by 2030.
“India is gaining power in the world order, and in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies,” Ridham Desai, Morgan Stanley’s Chief Equity Strategist for India, asserted.
“India has the conditions in place for an economic boom fueled by offshoring, investment in manufacturing, the energy transition, and the country's advanced digital infrastructure,”Morgan Stanley https://t.co/L8wHadb0fs
— Nirmala Sitharaman (@nsitharaman) November 3, 2022
According to the report, India’s gross domestic product (GDP) could more than double from $3.5 trillion today to exceed $7.5 trillion by 2031, citing demographics, digitalisation, decarbonisation, and deglobalisation.
“India will be one of only three economies (the other two being the US and China) in the world that can generate more than $400 billion annual economic output growth from 2023 onward, and this will rise to more than $500 billion after 2028,” claimed Morgan Stanley’s chief Asia economist, Chetan Ahya.
Desai pointed out that in the coming decade, the number of people employed in India in outsourcing jobs could possibly double from 5.1 million to over 11 million. In fact, the recruitment of Indians for outsourcing jobs increased from 4.3 million to 5.1 million during the COVID-19 pandemic.
#NewIndia is becoming a global investment hub!
— MyGovIndia (@mygovindia) November 3, 2022
Morgan Stanley has reported that India's GDP will surpass USD 7.5 trillion by 2031! pic.twitter.com/kMbkTZlcfp
Morgan Stanley projected that India’s per-capita income will rise from $2,278 to $5,242 in 2031 and the number of households earning more than $35,000 per year could possibly jump fivefold in the coming decade to over 25 million.
Furthermore, the document also noted that India is on the verge of becoming the world’s factory as factors like corporate tax cuts, investment incentives, and infrastructure spending help drive capital investment in manufacturing. The bank also forecasted that the country’s “income distribution could flip over the next decade,” and therefore result in overall consumption becoming more than double from $2 trillion in 2022 to $4.9 trillion by 2030.
It also noted how India’s developing economy will pose new challenges, particularly in the energy sector. 600,000 Indian villages now have access to electricity, which could increase India’s daily energy consumption by 60% in the next decade. To this end, an estimated two-thirds of India’s new energy consumption will be supplied through renewables like biogas and ethanol, hydrogen, wind, solar, and hydroelectric power.
Morgan Stanley did praise India for its forward-thinking, however, particularly in its digital economy, notably the Aadhaar that is a part of IndiaStack, which has largely impacted “how India spends, borrows and accesses healthcare.”
India story 🇮🇳
— G Kishan Reddy (@kishanreddybjp) November 8, 2022
Sphasht Niti & Sahi Disha - The endeavour of @NarendraModi Govt:
"In the last 5 years India has done a lot of heavy lifting on policy" - Ridham Desai of Morgan Stanley. pic.twitter.com/mpJ5ZqNHgf
“In the coming decade, as India’s economy transforms, we think that it will be increasingly relevant for global investors in a similar way that China is today,” Ahya opined, adding that it could mimic China’s growth path from 2007 to 2012. Moreover, the average age of Indians is 11 years younger than that of the Chinese, and experts believe the growth is expected to be sustained longer than China’s with India’s average annual GDP growth rate reaching 6.5% in the coming decade while Beijing’s remains at 3.6%.
“We estimate India is set to drive a fifth of global growth in the coming decade. We think this offers a compelling opportunity for multinationals and global investors in a world starved of growth,” the report noted.
The report comes against the backdrop of India reducing its spending for the first time in the next three years in an effort to meet a fiscal deficit target of 6.4% of its GDP. Sources told Reuters that although tax cuts on fuel may decrease income by $12 billion, total revenue is still expected to increase by more than $18 billion to $24 billion this year, which would still fall short of the amount needed for extra food and fertiliser subsidies, amounting to between $18.3 billion and $22 billion. Nevertheless, an anonymous source emphasised, “The government is not going to budge from the fiscal deficit target,” noting that an “expenditure rationalisation” would be needed.