Supply-side reforms to aid India growth in next decade: Report

India will emerge as a key driver of Asia's growth within the next decade, Morgan Stanley said in its latest report.

Highlighting the reforms that have taken place in the country since 2014, the American financial services company said India is different from what it was in 2013 and has gained "positions in the world order".

Morgan Stanley said supply-side reforms will start a new cycle of manufacturing and capital expenditure to push the share in GDP by five percentage points by 2031. Moreover, India's share in global exports could increase to 4.5% and the share of profits in GDP may double during this period, it said.


"Triggered by supply-side reforms by the government, we expect a major rise in investments, a moderation in the CAD (current account deficit) and an increase in credit to GDP to support the coming profit growth," the report said.

Barclays has forecast a decline in the current account deficit to 1.1% in 2023-24 from a likely 1.9% in 2022-23.

India's current account balance is expected to show a surplus in the January-March period after a gap of six quarters. The trend is likely to continue in the current quarter.

"We believe India's structural transformation will feed into the saving-investment dynamics, implying gains for its external balance sheet, with a progressively narrower trend in the CAD," said the report.

It pointed to the reforms undertaken by the government on reducing corporate taxes, infrastructure growth, formalisation and social benefits.

Morgan Stanley analysts said the reforms should also lead to more than doubling of India's per capita income to over $5,200 by 2031-32, which shall lead to a change in consumption baskets, with an increase in discretionary spending.

The report projected that 46% of households would earn $10,000-35,000, nearly double the proportion in 2021.