US banking group Morgan Stanley has said India is set to become the world’s third-largest economy and stock market by the end of this decade with the GDP likely to cross US$ 7.5 trillion by 2031, more than double the current level.
“India is gaining power in the world economy, and in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies,” Morgan Stanley said in a report.
According to Morgan Stanley, 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. “The implications are that GDP is likely to cross $7.5 trillion by 2031, more than double the current level, a discretionary consumption boom and 11% annual compounding of market capitalization to US$ 10 trillion in the coming decade,” it said.
“Implications include a rise in credit to GDP from 57% to 100%, better healthcare services, greater insurance penetration, a quintupling of stock market investors from 62 million (up from 20 mn three years ago) to around 300 million, potentially leading to a continuation of the persistent bid on stocks and a material rise in consumer discretionary spend,” it said. The breadth of India’s income pyramid lends further momentum to consumer spending, which is likely to benefit as India crosses the crucial $2,000 per-capita GDP level.
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. “We estimate that manufacturing’s share of GDP will rise from 15.6% currently to 21% by 2031, which implies nominal output jumping from $447 billion to about $1.49 trillion,” Morgan Stanley said.
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Just as China’s developmental path is often compared to the US, India will be compared to China. The comparison arises primarily because both economies have populations of over 1 billion, and yet China’s economy is about five times the size of India’s (in nominal USD terms), it said. “We project that India’s private consumption will more than double from $ 2 trillion in 2022 to $ 4.5 trillion by the end of the decade, a size that would be roughly similar to China in 2015,” it said.
At the starting point, the consumption share in GDP has been higher in India as compared to China.
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“We expect this ratio to remain relatively high in India. India’s private consumption will more than double to $4.5 trn by the end of this decade, similar in size to China in 2015,” Morgan Stanley said.
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