Morgan Stanley on India: The fastest-growing Asian economy in FY23

India to grow at 7.3% vs. 6.8% in China

According to a research report by Morgan Stanley, India is the fastest-growing Asian economy in FY23 and will remain so in the coming years. The report says that India has emerged as the fastest-growing Asian economy, led by services, manufacturing, and construction sectors. The Indian economy grew 7.3% y-o-y in 3QFY19 vs. 6.8% for China. In its Asia outlook report, MS said that India’s economic expansion would outpace China over the next two years because of new growth drivers such as digital services, supply chain networks, e-commerce, and financial services. The brokerage firm expects more reforms to boost private investment and consumption:

Key takeaways from the report

  1. The leading factors of this growth are the services, manufacturing, and construction sectors. The economic expansion will outpace China over the next two years because of new growth drivers such as digital services, supply chain networks, e-commerce, and financial services.

  2. Manufacturing will be the critical driver of growth in India. The strong pickup in industrial production and rising exports will support the growth momentum. The services sector will remain the most significant contributor to the economy, accounting for about 60% of the GDP.

  3. Electricity and mining will remain the top services sub-sectors as the Indian economy is expected to grow at 7.3% in FY23 vs. 6.8% growth for China.

  4. Strong performance of the Indian rupee and expectations of policy rate hikes by the US Fed have increased the outflow of funds from the country. However, the Reserve Bank of India has intervened to strengthen the rupee. This scenario has ensured that the outflows do not result in a sustained weakness of the rupee.

Forecast of the Indian economy in Asia in the next two years.

  1. Morgan Stanley expects the Indian economy to grow at 7.5% in FY24 and 7.3% in FY25, while China is expected to grow at 6.3% and 6.0%, respectively.

  2. The forecast of a slowdown in China’s growth and a recovery in the Indian economy will indicate that the two Asian economies are converging in terms of their growth rates.

  3. The higher growth in India is expected to be led by intense manufacturing activity, a pickup in exports, and an increase in investment activity.

  4. The Indian rupee will be the best-performing Asian currency in the next two years.

Digital services will be another crucial driver of growth.

  1. Digital services will be another crucial driver of growth in the Indian economy. This sector is expected to grow higher than the overall services sector.

  2. The rapid expansion of the internet, growth of digital payments, and increase in the use of digital services such as e-commerce, ride-hailing, cab booking, and payment of health and education services will boost the growth of digital services in the country.

  3. The growth of the internet user base has increased from about 16% in 2016 to around 30% in 2019.

Supply chain networks and e-commerce will add to the growth.

  1. Supply chain networks and e-commerce are expected to contribute to the overall growth of the Indian economy.

  2. In the past, due to low productivity, India has not been a manufacturing hub for most companies. But now, the situation has changed, with several business-friendly policies, such as those related to GST, R&D, and encouraging FDI in various sectors.

  3. This has increased the number of foreign companies setting up facilities in the country and manufacturing, becoming a key contributor to the Indian economy.