India To Emerge As Asia's Strongest Economy Next Year Due To Policy Reforms: Report

Morgan Stanley's projection comes at a time when developed economies painted a gloomy picture with business activity in the United States and eurozone contracting in July.

India could emerge as the Asia's strongest economy in 2022-2023 on the back of robust domestic demand aided by economic policy reforms, a young workforce and business investments, according to the latest projection by economists of Morgan Stanley. The brokerage has estimated India's growth to average 7 per cent for 2022-2023 and contribute 28 per cent and 22 per cent to Asian and global growth, respectively, reported news agency Reuters.

The projection comes amid India’s economic growth of 9.2 per cent in the fiscal year 2022, a sharp recovery from a 6.6 per cent contraction in the previous year as Covid-19 lockdowns severely impacted the economic growth, as per the report. India now expects GDP growth of 8-8.5 percent for 2022-2023, the company noted in its report.

"Lower corporate taxes, the production-linked incentive (PLI) scheme and India as a potential beneficiary of supply chain diversification will catalyse and sustain domestic demand, especially in investment," the economists said in a note dated Tuesday, as reported by Reuters.

What will aid India’s growth?

With a view to attract manufacturers and revive private investment, India had slashed corporate tax rates in 2019 and also launched the PLI scheme in 2020 to boost domestic manufacturing.

However, the brokerage expects risks related to higher energy prices triggered by the Russia-Ukraine war and supply constraints to stay but added the impact has begun to recede.

Morgan Stanley's outlook comes at a time when developed economies painted a gloomy picture with business activity in the United States and eurozone contracting in July, as per their PMI data. "The economy is set for its best run in over a decade as pent-up demand is being unleashed," the brokerage said, adding that "healthy" corporate balance sheets and business confidence bodes well for India's investment outlook.

It noted that India, like other economies, spiked interest rates to tackle inflation, the 39.45 trillion rupee ($529.7 billion) budget for the current fiscal year is aimed to push public investment.

It expects domestic consumption to pick up and services exports to hold up better than goods exports.