India is on track to become the world’s third-largest economy by 2027, surpassing Japan and Germany, and have the third-largest stock market by 2030, on the back of global trends and key investments the country has made in technology and energy, according to a report by global investment bank Morgan Stanley.
It said India is already the fastest-growing economy in the world, having clocked 5.5 per cent average gross domestic product growth over the past decade. Now, three megatrends—global offshoring, digitalization and energy transition—are setting the scene for unprecedented economic growth in the country of more than 1 billion people.
Ridham Desai, chief equity strategist (India) of Morgan Stanley, said, “We believe India is set to surpass Japan and Germany to become the world’s third-largest economy by 2027 and will have the third-largest stock market by the end of this decade… Consequently, India is gaining power in the world order, and in our opinion these idiosyncratic changes imply a once-in-a-generation shift and an opportunity for investors and companies.”
The report said India’s GDP could more than double from $3.5 trillion today to surpass $7.5 trillion by 2031. Its share of global exports could also double over that period, while the BSE could deliver 11 per cent annual growth, reaching a market capitalisation of $10 trillion in the coming decade.
Chetan Ahya, chief economist (Asia) at Morgan Stanley, said, “In a world that is currently starved of growth, the opportunity set in India must be on global investors’ radar… India will be one of only three economies in the world that can generate more than $400 billion annual economic output growth from 2023 onward, and this will rise to more than $500 billion after 2028.”
The report said companies around the world have been outsourcing services such as software development, customer service and business process outsourcing to India since the early days of the Internet. Now, however, tighter global labor markets and the emergence of distributed work models are bringing new momentum to the idea of India as the back office to the world.
Desai said that in a post-Covid environment, CEOs are more comfortable with both work from home and work from India. In the coming decade, he added, the number of people employed in India for jobs outside the country is likely to at least double, reaching more than 11 million, as global spending on outsourcing swells from $180 billion per year to around $500 billion by 2030.
“Multinationals are now buoyant about the prospects of investing in India, and the government is helping their cause by investing in infrastructure as well as supplying land for building factories,” said Upasana Chachra, chief economist (India) at Morgan Stanley.
Morgan Stanley data shows that multinational corporations’ sentiment on the investment outlook in India is at an all-time high. Manufacturing’s share of GDP in India could increase from 15.6 per cent currently to 21 per cent by 2031 — and, in the process, double India’s export market share.
It said Indian consumers are also likely to have more disposable income. India’s income distribution could flip over the next decade, and consequently overall consumption in the country could more than double from $2 trillion in 2022 to $4.9 trillion by the end of the decade—with the greatest gains going to non-grocery retail, including apparel and accessories, leisure and recreation, and household goods and services, among other categories.
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