India’s nominal GDP is expected to reach $5 tr by 2027, making it world’s third-largest economy
In a report by foreign brokerage, Morgan Stanley it said that India’s importance as a global growth driver will increase with its share of world growth contribution rising from 10 percent in 2021 to 15 percent in 2022, and further to 17 percent in 2023-28.
“On a USD basis, we expect India’s nominal GDP growth to accelerate to 12.4 percent Y in F2025 (vs. 7 percent in F2024), outperforming China, the US, and the Euro Area. The high terminal growth rate will mean India’s economy will compound at a strong rate on a high base. We expect nominal GDP will reach $5trn by 2027, making India the world’s third-largest economy,” the report said.
“We see a virtuous cycle unfolding in India. We expect growth to be sustained at a healthy clip of 6.4 percent Y in F2024 and 6.5 percent Y in F2025, averaging 6.6 percent Y over F2024-28,” it said.
“We have had a constructive view on India for some time now, highlighting that India offers the best domestic demand alpha opportunity within Asia. The economic data is strong and risk assets have continued to do well. Against this backdrop, the debate with investors is around whether this strong run can be sustained and what are the risk factors to keep in mind,” it added.
“In our view, the most important driver to sustain growth and asset market performance is the investment cycle. To be sure, the investment cycle has already been inflected, driven initially by a sharp upturn in public capex.
“There are signs that private capex is picking up. As we have highlighted before — it has been the shift in policy approach since 2019 towards supply-side reforms (acceleration in public capex, cutting corporate taxes, and the introduction of the PLI scheme as key pivots) and reduced emphasis on redistribution, which has attracted investment, unlocked the structural growth story,” the report said.
Some investors have been looking to FDI data for evidence that India is benefitting from supply chain diversification. However, FDI inflows into India have declined from a peak of $70 bn on a 4Q trailing basis in 2021 to $33 bn in 2023. With global GDP and trade growth softening, global FDI flows have softened, it added.
Moreover, there are some sector-specific factors, such as funding for the Internet and related sectors (from a venture capital and private equity standpoint), which have slowed and is weighing on the aggregates. To be sure, India has actually gained a higher share of global FDI flows since 2017, with its share rising from 2.4 percent in 4Q17 to 4.2 percent in 1Q23, the report said.
Another thing to note is that there are some implementation lags, where announcements have been made, but the actual investment has not yet flowed through. For instance, we are still getting incoming newsflow on electronic manufacturing investment commitments coming from companies like Foxconn and Intel recently announcing its collaboration with eight companies to manufacture laptops in India.
[With Inputs from IANS]
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Too many futuristic predictions………….country with largest population will prosper on its own merits. what is the news is the economic down turn of Europe.