India’s Economy Poised for Boom, Says Morgan Stanley
Morgan Stanley highlighted that after a decade of declining investment to GDP ratio, capital expenditure has emerged as a significant growth driver in India.
According to Morgan Stanley’s report titled ‘The Viewpoint: India – Why this feels like 2003-07,’ India’s economic growth rate mirrors the period of 2003-07, during which growth averaged over 8 percent. The report indicates that after a decade of the investment-to-GDP ratio declining steadily, capital expenditure has emerged as a pivotal growth driver in India. The report suggests that the current expansion closely resembles that of 2003-07 due to the potential for further growth in the capex cycle.
The cycle is also propelled by investment outpacing consumption, with public capital expenditure initially taking the lead but private capital expenditure quickly catching up. According to the report, “We believe the key feature of the current expansion is the increase in the investment-to-GDP ratio.” Similarly, during the 2003-07 cycle, the investment-to-GDP ratio rose from 27 percent in fiscal year ending March 2003 to 39 percent in fiscal year ending March 2008, nearing its peak. The investment-to-GDP ratio then remained around those levels until reaching its peak in fiscal year ending March 2011. Subsequently, from 2011 to 2021, there was a decade-long decline in the ratio. However, it has now started to rise again, reaching 34 percent of GDP, and is expected to further increase to 36 percent of GDP by fiscal year ending March 2027.
Nevertheless, the initial increase in private consumption growth was relatively restrained, averaging only 4.8 percent in 2003-04,” the report stated. Within the cycle, real gross fixed capital formation (GFCF) growth remains robust at 10.5 percent in October-December, surpassing the pre-Covid 2017-18 average of 9.6 percent, according to the report. It clarified, “This growth has primarily been propelled by public capital expenditure thus far, as the corporate sector has been contending with various setbacks from previous years, which have hindered its capacity to invest.”
With corporate profits (based on bottom-up company data) to GDP rebounding “from a low of 1.1 percent in F2020 to 5.4 percent in F2023, indications of private capital expenditure gathering pace are emerging,” the report stated.
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