According to Morgan Stanley, India may not match China in the long term economic growth rate. The lead investment bank’s chief Asia economist Chetan Ahya said India was unlikely to achieve the 8%-10% economic growth rates that China pulled off over the long term, even though the bank remains optimistic about the South Asian nation’s prospects.
“India’s economy will likely grow steadily at 6.5%-7% over the long term,” Ahya said in an interview. The South Asian nation was also far from replacing its bigger rival as a global manufacturing hub, he added.
China’s growth averaged 10% a year in the three decades after its economic reforms in 1978, official figures show.
Economic progress in India is being hamstrung by a lack of infrastructure, and a low skilled workforce, Ahya said. “Both these constraints make us believe that India’s growth is going to be strong, but at 6.5%-7% rather than 8%-10%,” he said.
Even so, Morgan Stanley remains upbeat about India’s prospects, and said in a recent report that the current expansion resembles that of the mid-2000s boom, fueled by rising investment.
India “will have its rightful place,” and early signs of the economy’s rise are visible in the increase in capital flows and the gain in India’s share of global foreign direct investment, he said. “But to say that India will replace China or compete very heavily with China in the manufacturing sector, we think that’s less likely,” he said.
“China is far more advanced” in manufacturing and getting into new industries such as renewable, space, and legacy semiconductors, Ahya said. “India is going to take time to get to that type of competitiveness,” he said.
India posted a growth rate of 8.4% in the final three months of 2023, although economists have raised questions about the strength of the data. Government officials have said the economy will likely grow 7% in the fiscal year that begins in April, after an expected expansion of 7.6% this financial year.
Ahya said strong growth may influence the timing of the Reserve Bank of India’s interest rate cuts this year. While Morgan Stanley’s base case is still for a“shallow rate cut cycle” beginning in June, surprises in growth could lead to a “possibility that the RBI either delay the rate cut or probably not take it up at all.”
RBI Governor Shaktikanta Das has said he won’t be willing to cut rates unless inflation settles around the 4% target on a sustainable basis. Latest data for February showed inflation was still more than 1 percentage point higher than the target.
Also Read: HC Notice To Government, Google After Man’s Account Blocked Over ‘Nude’ Childhood Photo
