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.
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“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.
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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.
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.
