This is India’s decade and GDP is likely to cross $7.5 trillion by 2031, says Morgan Stanley

• Factors like offshoring, digitisation and decarbonisation are set to drive India’s ascent as the world’s third largest economy.
  
• India's per-capita energy consumption is likely to rise 60% and most of this demand will be met by renewable energy.
  
• The number of households earning in excess of $35,000 a year is likely to rise fivefold in the coming decade to over 25 million.

India could well be on its way to becoming the world’s third largest economy and stock market if Morgan Stanley’s equity strategists and economists are to be believed. In its report titled ‘Why This Is India’s Decade’, the global investment bank cites several factors like the rise in offshoring, investments in manufacturing, energy transition and the country’s digital infrastructure would make this a reality.

Morgan Stanley, has remained bullish on the India story for years now, unlike some other global banks that Modi-fied their view on India after the taper tantrum of 2013 and the subsequent meltdown in markets. Over the years, Morgan Stanley’s celebrated strategist Ridham Desai has steadfast in his analysis on the Next India. Many of his projections have played out like the one on retail investors leading the charge in Indian equities. After two years of the pandemic, during which foundations of the future have been laid, the theme has now shifted to New India.

The strategy report titled ‘Why This is India’s Decade’ by Morgan Stanley says: “Our Next India thematic looked at the trends and policies shaping the future of India's economy. As those trends have largely come to pass, with this report we shift from The Next India to The New India thematic to mark this transition. The four global trends of Demographics, Digitalization, Decarbonization and Deglobalization are favouring New India.”

The first factor that will continue to benefit India is offshoring. India has been the back office for the world for more than two decades. But the pandemic has only accelerated the pace of this trend, as more companies look at offshoring various functions to India. In a multi-polar world, now even manufacturing is slated to shift India. Morgan Stanley has spent considerable time in its report on why India would rise in the world economy.

Digitisation and the India stack is a story that is not very often seen in its entirety. The India Stack, digital payments using Unified Payments Interface that can handle large volumes at a small cost is unique to India. The digital revolution will transform how India lends, pays and insures itself. Says Morgan Stanley, “The digital revolution has already changed the way India handles documents, invests, and makes payments, and it is also set to alter the way India lends, spends and insures.”


Clean energy and the energy transition are sectors where India is keen to take a lead with Indian behemoths Reliance Industries and Adani Group taking big strides. While the world has seen energy transitions before, what makes India unique is that the consumption of energy and its sources are undergoing a sharp shift. Since consumption of energy is still rising in India, legacy energy assets will not become redundant overnight. These assets will continue to be in use even as greener sources start replacing two-thirds of the demand. Explains MS: “India's energy needs are still growing, and, therefore, legacy capacity using fossil fuels will not be destroyed as it transitions to a higher share of renewables. India's per-capita energy consumption is likely to rise 60%, on our estimates, to about 1450 Watts per day in the coming decade, with two-thirds of the incremental supply coming from renewable sources.”

This shift will lead to a virtuous cycle and reduce dependence on imported fuel, risks of price volatility and inflationary pressures. The future definitely looks brighter for India as it makes this shift, leading to better living conditions. No prizes for guessing that a combination of these factors would be good for consumer demand and equity markets.

Indians are expected to spend more on discretionary spends, as per-capita GDP has crossed the important $2,000 mark. According to MS, “India's income pyramid offers unique breadth of consumption, in our view, with the top end spending like the richest in the world and the bottom end still relatively poor. The number of households earning in excess of $35,000/year is likely to rise fivefold in the coming decade, to over 25 million. The implications are 1) GDP is likely to cross $7.5 trillion by 2031, more than double the current level, 2) a discretionary consumption boom and 3) 11% annual compounding of market capitalization to $10 trn in the coming decade.”

The only risk to this Goldilocks assessment is the risk of a prolonged recession globally, adverse geopolitical risks and an unstable government at the centre in India.

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