The global investment bank expects India’s gross fixed capital formation to GDP or investment ratio to rise to 36% of GDP by FY27 from 34% expected in FY24.
The Indian government has forecast 7.6% GDP growth in FY24. Data released last week showed growth averaged more than 8% in the first three quarters of the fiscal, with investment growing in double digits in the previous two quarters.
“The public capex-led nature of the present cycle in India plays an even more important role for the sustainability of the overall capex cycle,” researchers at Morgan Stanley pointed out.
India’s central government capex is expected to rise to 3.4% of GDP in FY25, from 3.1% this fiscal. The investment ratio increased by 12 percentage points to 39% in FY08 but fell to 28% during the pandemic.
ET BureauMorgan Stanley researchers also highlighted that investment is likely to outperform consumption like in 2003-07. They also noted that other characteristics resembling the 2003-07 period are urban demand leading rural demand, rising share in global exports and macroeconomic stability. They pointed out that both private investment and rural demand were exhibiting signs of revival.
“We are now seeing signs that the rural household balance sheet is on the mend and we expect further improvements, which bodes well for rural consumption,” the researchers noted.
On the private investment side, they pointed to improving corporate profits as an indicator of investment recovery. They also noted that supply chain diversification is expected to help India boost its share in global exports.
However, the researchers said constraints to India’s growth could emerge within the next 18-24 months if labour and logistics bottlenecks are not resolved.
India is likely to expand by 6.5% in the coming decade, according to Morgan Stanley.
