Four Global Trends To Underpin ‘New India’ In This Decade: Morgan Stanley

Emerging global trends on the demographics, digitalisation, decarbonisation, and deglobalisation fronts are favouring India, enabling the country to lead one-fifth of global growth in the current decade, a recent thematic report by Morgan Stanley stated.

‘The New India' report by the analyst sees the country becoming the third-largest economy and stock market in the world before the end of the decade. An economic boom “fueled by offshoring, investment in manufacturing, the energy transition, and the country's advanced digital infrastructure” will lead to this outcome, it said.

India cemented its place as “the office to the world” during the pandemic, the report said, showing the strength of its services sector. Government incentives and concomitant developments are now allowing the country to gain traction as the factory of the world as well, it said.

“Investment in services and manufacturing will come from foreign direct investment and a large increase in private domestic investment,” analysts at Morgan Stanley said.

The report cited IndiaStack to emphasise the transition towards a digital economy in India. “IndiaStack, which operates at population scale, is a transaction-led, low-cost, high-volume, small-ticket-size system with embedded lending. It will take India from a 'prepaid' economy to a 'postpaid' one.”

While the digital revolution has already transformed the way India handles documents, invests, and makes payments, it will now alter the way it “lends, spends, and insures,” the report said.

As the world undergoes an energy transition, India is seeing a simultaneous change in both its energy consumption and energy sources in a disruptive fashion, the report said. Since India's energy needs are still growing, legacy capacity using fossil fuels will not be destroyed as it transitions to a higher share of renewables, it added.

In the next ten years, the report said that India's energy use per person would increase by 60%—to 1,450 watts per day—with two-thirds of the extra energy coming from renewable sources.

According to Morgan Stanley, this will have a positive effect on India's terms of trade, which involve about $750 billion in energy capital expenditures, and will eventually lower headline inflation volatility as the share of GDP that comes from imported energy falls.

It can also help lower fertiliser subsidies, improve living conditions, and create new demand for solutions such as electric vehicles, cold-storage chains, and green hydrogen-powered trucks and buses, it added.

Morgan Stanley said these estimates are underpinned by its multipolar world thesis and India's rise in the world economy. India's commitment to the Paris Accord and government policies targeted at lifting the share of profits in GDP with a concomitant positive effect on investment also support these predictions.

The report listed major investments in terms of both dollars and institutional infrastructure to leverage Aadhaar among the supports to its New India thematic.

The report projected India's GDP crossing $7.5 trillion by 2031, along with a discretionary consumption boom. The market capitalisation will see an 11% annual compounding to reach $10 trillion in the coming decade, it added.

Key investment themes would be financial services, consumer discretionary products, industrials, domestic materials, real estate, and exports, Morgan Stanley noted.

On the flipside, a prolonged global recession or sluggish growth, adverse geopolitical developments, domestic politics and policy errors, shortages of skilled labour, and steep rises in energy and commodity prices remain key risks to India's economic rise.