According to Morgan Stanley, India’s economic growth is unlikely to match the 8%-10% rates that China has sustained over the long term. This prediction was made by the bank’s chief Asia economist, Chetan Ahya, in a recent interview with Bloomberg.
What Happened: Ahya told Bloomberg Television that he projects India’s economy to grow at a steady rate of 6.5%-7% over the long term. He further stated that India is not yet ready to take over China’s position as a global manufacturing hub.
Inadequate infrastructure and a workforce that lacks skills are holding back India’s economic growth. Ahya pointed out, “Both these constraints make us believe that India's growth is going to be strong but at 6.5%-7% rather than 8%-10%.”
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Despite these obstacles, Morgan Stanley maintains a positive outlook on India’s economic future. The bank recently noted that a surge in investment fueled India’s current economic growth, mirroring the mid-2000s boom.
Economists have questioned the robustness of the data that recorded India’s growth rate at 8.4% in the final quarter of 2023. Government officials predict a 7% growth for the economy in the fiscal year starting in April. This follows an expected expansion of 7.6% this financial year.
Ahya indicated that strong growth could impact the timing of the Reserve Bank of India’s interest rate cuts this year. While Morgan Stanley foresees a “shallow rate cut cycle” commencing in June, unexpected growth could postpone the rate cut.
Why It Matters: India’s economic growth is a significant factor for global investors. The country’s potential to become a global manufacturing hub could attract substantial foreign investment. However, the challenges identified by Morgan Stanley, such as inadequate infrastructure and a low-skilled workforce, could deter investors.
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