As India’s Prime Minister Narendra Modi celebrates the ninth anniversary of his government in New Delhi this month, a report card published by US financial services firm Morgan Stanley is sure to swell his pride. The report, authored by Morgan Stanley India’s Chief Economist and Managing Director Ridham Desai, throws light on 10 significant and transformational changes India has witnessed over the past decade, majorly under the watch of PM Modi’s administration, who rose to power in 2014.
The report titled, ‘India Equity Strategy and Economics: How India Has Transformed in Less than a Decade’, lays out how path-breaking economic initiatives taken by the Modi administration have improved India’s micro and macro outlook in a span of 10 years. “This India is different from what it was in 2013,” the report said.
“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, noted.
“However, such a view ignores the significant changes that have taken place in India, especially since 2014,” It added.
Morgan Stanley’s prediction about India
Based on its analysis of the Indian economy, Stanley in its report also made predictions for India, both with respect to domestic policies and international dynamics. The report noted that the manufacturing sector will lead the GDP growth in India for the next seven years, with exports projected to witness a steep rise.
The report said, “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. 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.”
Morgan Stanley’s thumbs up to ‘Atmanirbhar Bharat’
Self-reliance or ‘Atmanirbhar’ India is one of the key economic initiatives that the government of India has undertaken over the last five years. It aims to make India lesser dependent on international factors while boosting the manufacturing sector led by domestic demand.
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Now, Morgan Stanley’s report has noted that the Indian economy is becoming less susceptible to factors outside of its jurisdiction. For instance, India’s reliance on global capital market flows has reduced. Also, India’s sensitivity to shocks in the US market, like rate change by the Fed or recession, seems to be fading. Simply put, the Indian economy is well insulated against international risks emerging from the West.
10 changes in the Indian economy
The report has highlighted the following ten major changes the Indian economy has gone through over the past 10 years.
1. Supply-side Policy Reforms
2. Formalisation of the Economy
3. Real Estate (Regulation and Development) Act
4. Digitalising Social Transfers
5. Insolvency and Bankruptcy Code
6. Flexible Inflation Targeting
7. Focus on FDI
8. India’s 401(k) Moment
9. Government Support for Corporate Profits
10. MNC Sentiment at Multiyear High
The report emphasises that the Indian government’s decision to reduce corporate tax rates in 2019 has placed India “at par with peers” such as China, Indonesia, South Korea, Malaysia, Japan, Thailand, Vietnam, and Singapore. This move has enhanced India’s competitiveness in the global market and attracted more investment to the country.
One of the remarkable achievements highlighted in the report is the accelerated pace of infrastructure creation over the past eight years compared to the previous period. For instance, the construction of 53,700 km of national highways between 2014-15 and 2022-23 far exceeds the 25,700 km built between 2005-06 and 2013-14. This expansion of the road network is crucial for improving connectivity, fostering trade, and driving economic growth.
The report also highlights the significant increase in the broadband consumer base over the past eight years. Approximately 771.3 million people gained access to broadband services, a substantial rise compared to the 58.9 million in the previous eight years.
India’s commitment to renewable energy has been commendable, as indicated by the report. Between 2014-15 and 2022-23, the country installed a total of 95.7 GW of renewable energy capacity, a significant leap from the 25.7 GW installed between 2005-06 and 2013-14.
The report also highlights the consistent increase in tax collections under the Goods and Services Tax (GST), indicating a significant formalisation of the economy. Additionally, digital transactions as a percentage of GDP have skyrocketed from 4.4 per cent in 2015-16 to an impressive 76.1 per cent in 2022-23.
Reforms such as the Real Estate (Regulation and Development) Act, 2016 have also played a crucial role in revitalising the real estate sector. The report showcases a substantial rise in new property launches and sales, with approximately 75,000 units and 60,000 units, respectively, recorded in the first quarter of 2022-23. This represents significant growth compared to around 50,000 new launches and 41,000 new sales in the second quarter of 2014-15.
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