Morgan Stanley says India cannot match the 8-10% growth China pulled off in past

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Morgan Stanley’s chief Asia economist doesn’t see India getting the 8%-10% economic growth rates China pulled off over the long term, even though he remains optimistic about the South Asian nation’s prospects.

India’s economy will likely grow steadily at 6.5%-7% over the long term, Chetan Ahya said in interview to Bloomberg Television. The South Asian nation is also far from replacing its bigger rival as a global manufacturing hub, he added. China’s growth averaged 10% a year in the three decades after its economic reforms in 1978, official figures show.

Economic progress in India is being hamstrung by a lack of infrastructure, and a low skilled workforce, Ahya said. 

“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 said.

Incidentally, Morgan Stanley in another report had said India’s current world-beating economic growth rate on the back of an investment boom resembles that of 2003-07 when growth averaged more than 8 per cent.

In the report ‘The Viewpoint: India – Why this feels like 2003-07’, Morgan Stanley said after a decade of investment to GDP steadily declining, capex has emerged as a key growth driver in India. “We think the capex cycle has more room to run, therefore the current expansion closely resembles that of 2003-07. The current cycle is driven by investment outperforming consumption, public capex leading initially but private capex rapidly catching up, the urban consumer leading consumption followed by catch-up in rural demand, market share in global exports rising and macro stability risks kept in check. 

“We think the defining characteristic of the current expansion is the rise in the investment-to-GDP ratio. Similarly, in the 2003-07 cycle investment to GDP rose from 27 per cent in F2003 (fiscal year ending March 2003) to 39 per cent in F2008, which was close to the peak. “Investment to GDP then hovered around those levels until it peaked in F2011. 2011 to 2021 then registered a decade of decline – but the ratio has now inflected again to 34 per cent of GDP and we expect it to rise further to 36 per cent of GDP in F2027E,” it said. 

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