India Set To Become Third-Largest Economy By 2027: Morgan Stanley

Bolstered by investments it has made in technology and energy, India is set to surpass Japan and Germany to become the world's third-largest economy by 2027, Morgan Stanley has forecast. The Wall Street major further said that India will be home to the third-largest stock market in the world by 2030.

"Three megatrends--global offshoring, digitalisation, and energy transition--are setting the scene for unprecedented economic growth in the country of more than one billion people", Morgan Stanley said in a report.

Stating that India is gaining power in the world order, Ridham Desai, Morgan Stanley's Chief Equity Strategist for India, noted that "idiosyncratic changes" imply a once-in-a-generation shift and an opportunity for investors and companies.

"India's gross domestic product (GDP) could more than double from $3.5 trillion today to surpass $7.5 trillion by 2031. Its share of global exports could also double over that period, while the BSE could deliver 11 per cent annual growth, reaching a market capitalisation of $10 trillion in the coming decade," said the report titled 'India's Impending Economic Boom'.

Stressing that in the post-Covid environment, chief executive officers (CEOs) are more comfortable with both working from home and working from India, Rhidam Desai said: "In the coming decades, the number of people employed in India for jobs outside the country is likely to at least double, reaching more than 11 million, as global spending on outsourcing swells from $180 billion per year to around $500 billion by 2030."

A slew of factors such as corporate tax cuts, investment incentives, and infrastructure spending are helping drive capital investments in manufacturing, Morgan Stanley said, adding that India is also poised to become the factory of the world.

It further emphasised that India's share of manufacturing is expected to increase to 21 per cent of GDP by 2031. It stood at 15.6 percent as of financial year 2022.

The report also highlighted the role of public digital infrastructure in India in driving the growth.

India began laying the foundation for a more digital economy more than a decade ago with the launch of a national identification program called Aadhaar. The system creates biometric IDs to establish proof of residence and has been instrumental in digitizing financial transactions, among other benefits.

This initiative is now part of IndiaStack, a decentralized public utility offering a low-cost comprehensive digital identity, payment, and data-management system. "IndiaStack is likely to lead to a massive change in how India spends, borrows and accesses healthcare," says Rhidam Desai.

"India is currently one of the most underleveraged countries in the world," he added.

Consumers are likely to have more disposable income. India's income distribution could flip over the next decade, and consequently overall consumption in the country could more than double from $2 trillion in 2022 to $4.9 trillion by the end of the decade.

The biggest gains from this consumption story may go to non-grocery retail, including apparel and accessories, leisure and recreation, and household goods and services, among other categories, the report said.

The rise in India's energy consumption alongside the energy transition opens up a new segment to boost investment growth, said Girish Achhipalia, India Utilities and Industrials analyst.

"We believe this rise in capital investments will help to unleash a virtuous cycle of investment, with more jobs and income, more savings and in turn more investment," he added.