India’s Current Growth Trajectory Mirrors The Mid-2000s: Morgan Stanley

“We see a long runway ahead for the current expansion cycle,” the economists said in the report

Investment has emerged as a significant contributor to India's thriving economy, according to economists at Morgan Stanley. They also noted that the nation's current growth trajectory mirrors that of the mid-2000s, a period characterised by an average growth rate beyond 8 per cent. The economists suggested that the economy shows potential for further growth, citing opportunities for increased capital expenditure, particularly from private enterprises, as well as the uptick in exports and overall economic stability.

After a decade-long decline, India's investment as a percentage of gross domestic product (GDP) is on a steady rise and is projected to reach 36 per cent by 2027, up from a recent low of 28 per cent in 2021, according to economists, including Chetan Ahya, MD at Morgan Stanley. They noted in a report on Tuesday that this resurgence mirrors the period from 2003 to 2007 when India's investment ratio surged to 39 per cent.

“We see a long runway ahead for the current expansion cycle,” the economists said in the report.

The world’s fastest-growing major economy recorded an impressive growth rate of 8.4 per cent in the final quarter of the previous year. However, when one-off items were excluded, a more representative measure of India’s economic growth indicated a slowdown, prompting questions about the sustainability of its growth trajectory.

Economists at Societe Generale noted on Monday that investment continues to play a pivotal role in driving India’s economic growth. They observed early indications of a resurgence in private capital expenditure, suggesting that investment is broadening beyond public capital expenditure.

India's leading economic advisor mentioned on Wednesday that there are continuous indications of capital formation, which could facilitate the economy to expand by more than 7 per cent in the fiscal year starting in April. This investment push has bolstered significant stocks. 

The S&P BSE Industrials Index, encompassing manufacturers of various sectors, including bridges, helicopters, and wind turbines, has surged by over 71 per cent in the past year. Consequently, the combined market capitalisation of its 200-plus members has soared by more than $175 billion.