Morgan Stanley's chief Asia economist believes India will not achieve the 8%-10% economic growth rates that China has achieved in the long run, despite remaining enthusiastic about the South Asian country's potential.
In an interview with Bloomberg Television, Chetan Ahya predicted that India's GDP would develop stably at 6.5%-7% over the long run. He said that the South Asian country is still a long way from replacing its larger rival as a global manufacturing base. According to government data, China's growth rate averaged 10% per year for the three decades following its economic reforms in 1978.
According to Ahya, a lack of infrastructure and a low-skilled workforce are impeding India's economic growth.
"Both these constraints make us believe that India's growth is going to be strong, but at 6.5%-7% rather than 8%-10%," he added.
In another analysis, Morgan Stanley stated that India's current world-beating economic growth rate, driven by an investment boom, is comparable to that of 2003-07, when growth averaged more than 8%.
According to Morgan Stanley's research 'The Viewpoint: India - Why this feels like 2003-07', after a decade of declining investment to GDP, capex has emerged as a key growth engine in India. "We think the capex cycle has more capacity to go, so the current expansion roughly parallels that of 2003-07. The present cycle is driven by investment outperforming consumption, with state capex initially leading but private capex rapidly catching up, urban consumers leading consumption, followed by a catch-up in rural demand, global export market share increasing, and macroeconomic stability risks being managed.
"We believe that the present expansion is distinguished by an increase in the investment-to-GDP ratio. Similarly, in the 2003-07 cycle, investment to GDP increased from 27% in F2003 (fiscal year ending March 2003) to 39% in F2008, which was near to the high. Investment to GDP then remained at those levels until it peaked in F2011. From 2011 to 2021, there was a decade of decrease, but the ratio has already recovered to 34% of GDP, and we estimate it to climb further to 36% of GDP in F2027E," it said.
