India’s economy grows stronger, expected to reach pinnacle in coming decade

The global economy is now in its steepest slowdown following a post-recession recovery since 1970. However, at a time when most countries are witnessing a slower economic growth, India is doing way better and is at a relatively brighter spot, despite several setbacks.

India is in a stable situation and the growth momentum is admirable, despite the numerous crises being experienced simultaneously and getting entangled with each other.

Global consumer confidence has already suffered a much sharper decline than in the run-up to previous global recessions and the global financial crisis back in 2007-2008.

However, due to global trends and key investments, the Indian subcontinent has made in technology and energy and is on track to become the world’s third largest economy surpassing Japan and Germany, and have the third largest stock market by 2030. 

There is absolutely no doubt that the major countries, including advanced economies are facing major headwinds – initially due to the Covid-19 pandemic and later, largely because of massive supply chain disruptions because of sanctions against Russia that made food and fuel unaffordable for the poor countries, including some of the developed world.

The world’s three largest economies – the United States, China, and the Euro area – have been slowing sharply, with the US most likely heading for a recession. And as central banks across the world simultaneously hike interest rates in response to inflation, all this means the world may be edging toward a global recession in 2023.

The whole world is looking at India with great hope during this turbulent time of global uncertainties because the country’s economic fundamentals are robust, its political leadership is strong, its will for reforms is unrelenting and its implementation of welfare schemes is unparalleled in terms of scope, scale and effectiveness.

A recent forecast by Morgan Stanley said that India will account for a fifth of total global economic growth in the next decade. The expanding size and scale of the country's economy will be the prime drivers of this surge, the global investment bank added.

The report titled 'Why This Is India's Decade' underlines the trends and policies driving the future of the country's economy.

According to the report, India's GDP is set to double from the current $3.4 trillion to $8.5 trillion over the next decade. "India will add more than $400 bn to its GDP every year, a scale that is only surpassed by the US and China," the report said.

The required conditions are in place to make India the world's third largest economy as well as the world's third largest stock market by 2027, it said. It projected that by 2032, India’s market capitalisation will go up from $3.4 trillion to $11 trillion by 2032 — the third biggest.

India's rising heft represents a "once-in-a-generation shift and an opportunity for investors and companies," it said.
Four key factors — demographics, digitalization, decarbonization and deglobalization — are likely to facilitate India's rapid rise, it said.

According to the report, the number of households making more than $35,000 a year is set to rise fivefold in the coming decade. This is likely to lead to a discretionary consumption boom, besides an 11 per cent annual compounding of market capitalization to $10 trillion during the decade.

Ridham Desai, Morgan Stanley’s Chief Equity Strategist for India said that India is set to surpass Japan and Germany to become the world’s third-largest economy by 2027 and will have the third-largest stock market by the end of this decade. 

“Consequently, India is gaining power in the world order, and in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies,” he said.

“In a world that is currently starved of growth, the opportunity set in India must be on global investors’ radar,” says Chetan Ahya, Morgan Stanley’s Chief Asia Economist. “India will be one of only three economies in the world that can generate more than $400 billion annual economic output growth from 2023 onward, and this will rise to more than $500 billion after 2028.”

Companies around the world have been outsourcing services such as software development, customer service and business process outsourcing to India since the early days of the Internet. Now, however, tighter global labor markets and the emergence of distributed work models are bringing new momentum to the idea of India as the back office to the world.

India's per-capita income is set to rise from the current $2,278 to $5,242 in 2031, the report added.

According to the Morgan Stanley report, India's global export market share is expected to more than double at 4.5 per cent by 2031, providing an incremental USD 1.2 trillion export opportunity.

India's services exports will almost treble to USD 527 billion (from USD 178 billion in 2021) over the next decade while e-commerce penetration to nearly double from 6.5 per cent to 12.3 per cent by 2031.

Internet users in India to increase from 650 million to 960 million while online shoppers will grow from 250 million to 700 million over the next 10 years and around 25 per cent of incremental global car sales over 2021-2030 will be from India and expect 30 per cent of 2030 passenger vehicle sales to be electric-run.

India should hit a "major inflection point" for the next residential property boom in 2030 - a confluence of high per-capita income, a mid-30s median age, and higher urbanization.

India's workforce in the technology services sector to more than double from 5.1 million in 2021 to 12.2 million in 2031.

Healthcare penetration in India can rise from 30-40 per cent now to 60-70 per cent; implying 400 million new entrants to the formal healthcare system.

Over USD 700 billion in energy investments are expected over the next decade as India accelerates its energy transition.

These forecasts, however, will depend on favourable domestic and global factors, the report noted. It will be important to have the "shift in policy approach away from redistribution and towards boosting investment and job creation," it observed.