India could become Asia’s strongest economy in 2022-23, Morgan Stanley says

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People walk in a crowded market in the old quarters of Delhi, India, April 6, 2021. REUTERS/Anushree Fadnavis/File Photo

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Aug 10 (Reuters) – India could become Asia’s strongest economy in 2022-23 as it is best placed to generate robust domestic demand, helped by economic policy reforms, a young labor and business investments, said Morgan Stanley economists.

The brokerage firm expects India’s growth to average 7% for 2022-2023 and contribute 28% and 22% to Asian and global growth respectively.

Morgan Stanley’s projection comes as Asia’s third-largest economy grew 9.2% in fiscal 2022, a strong recovery from a 6.6% contraction the year before, lockdowns COVID-19 having weighed heavily on its economy. The country now forecasts GDP growth for 2022-2023 at 8%-8.5%.

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“Lower corporate taxes, the Production Linked Incentives (PLI) program and India as a potential beneficiary of supply chain diversification will catalyze and support domestic demand, especially for investment,” the economists said in a note dated Tuesday.

In 2019, India cut corporate tax rates to woo manufacturers and kick-start private investment, and launched the PLI program in 2020 to help domestic manufacturing. (https://reut.rs/3QCZl5v)(https://reut.rs/3SFeRzp)

The brokerage firm believes that risks from rising energy prices, spurred by the war in Ukraine and supply constraints, persist, but added that they have started to fade.

Morgan Stanley’s outlook also comes as developed economies paint a grim picture, with business activity in the United States and the euro zone contracting in July, according to its PMI data. Read more

“The economy is poised for its best performance in more than a decade as pent-up demand is unleashed,” the brokerage said, adding that “healthy” corporate balance sheets and business confidence are bodes well for India’s investment prospects.

As India, like other economies, raised interest rates to fight inflation, Morgan Stanley said the country’s budget of 39.45 trillion rupees ($529.7 billion) for the current fiscal year continued to lean towards an increase in public investment.

He expects domestic consumption to pick up and services exports to hold up better than goods exports.

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Reporting by Siddarth S in Bengaluru; edited by Uttaresh.V

Our standards: The Thomson Reuters Trust Principles.

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