Morgan Stanley’s 10 reasons for why ‘this India is different from what it was in 2013’

“This India is different from what it was in 2013,” said the multi-national investment bank, Morgan Stanley, in its report titled ‘How India Has Transformed in Less than a Decade ’on India’s transformation in less than a decade. The report describes how India has “gained positions in the world order with significant positive consequences for the macro and market outlook,” in the last decade, under Prime Minister Narendra Modi. As per the report, India “will emerge as a key driver for Asia and global growth.”

The report presents a snapshot of the significant changes in the past decade and their implications. The report states, “We run into significant skepticism about India, particularly with overseas investors, who say that India has not delivered its potential (despite its being the second-fastest-growing economy and among the top-performing stock markets over the past 25 years) and that equity valuations are too rich.”

“However, such a view ignores the significant changes that have taken place in India, especially since 2014. We highlight the 10 big changes, mostly because of India’s policy choices, and their implications for its economy and market,” the report added.

 

The report highlights 10 big changes – Supply-Side Policy Reforms, Formalisation of The Economy, Real Estate (Regulation and Development) Act, Social Transfers: Direct to Beneficiary, Insolvency and Bankruptcy Code, Flexible Inflation Targeting, Focus on FDI, India’s 401(K) Moment, Government Support for Corporate Profits and MNC Sentiment at Multiyear High – as factors contributing to India’s transformation in the last decade.

Supply-Side Policy Reforms

The report states that India’s infrastructure has picked up pace in the last eight years. Furthermore, the report provides a snapshot comparing infrastructure progress before and after 2014. The report reveals that the pace of building national highways has doubled in the past decade. The report shows that while about 25,700 km of national highway was built between 2006 and 2014; since 2015 about 53,700 km of national highway has been built.

Furthermore, the report revealed that the pace of internet penetration in India has increased multi-fold since 2014. It shows that while 58.9 million broadband subscribers were added between 2006 and 2014; since 2015 about 771.3 million broadband subscribers were added.

The report also highlights the multi-fold increase in the production of renewable energy. India added 95.7 gigawatts (GW) of renewable energy since 2016, whereas a mere 25.7 GW was added between 2006 and 2014. The report further shows that about 42.3 per cent of railway routes was electrified since 2015, whereas a mere 6.3 per cent electrification between 2006 and 2014.

Formalisation of the Economy

The investment bank has highlighted that GST collections are on an upward trend. The snapshot highlights that GST collections are at about 6.7 per cent of India’s GDP. Furthermore, the report highlights the adoption of digital payment systems in India. The snapshot shows that digital transactions now constitute, in 2023, about 76.1 per cent in comparison with India’s GDP, whereas in 2016, digital transactions were at 4.4 per cent of the GDP.

Real Estate (Regulation and Development) Act

The report provides a snapshot of new launches and sales since 2015. While the real estate market witnessed its worst period during the 2nd and 3rd quarters of 2020 i.e. during the Covid-19 pandemic, it has recovered to a new high with about 75,000 new units launched and 60,000 new units sold in the 1st quarter of 2023.

Social Transfers: Direct to Beneficiary

The report highlights the significant growth in direct-to-beneficiary schemes over the past decade, indicating a multi-fold increase compared to the 2013 data. The snapshot reveals while the number of social welfare schemes has increased, the transfer amount which grew during the height of the pandemic has now plateaued.

Insolvency and Bankruptcy Code

The report states that the impaired loan ratio is at a 12-year low, due to the Insolvency and Bankruptcy Code. The impaired loan ratio was at its peak during 2017-18. Furthermore, the report highlights that corporate debt, as a percentage of GDP, is expected to moderate around 50 per cent in F2023 compared to the high of 62 per cent in 2015.

Flexible Inflation Targeting

The report states that the flexible inflation targeting regime has allowed India to reduce year-on-year inflation. Furthermore, the snapshot highlights the high inflation between 2009 to 2014, stating that the high inflation was driven by loose monetary/fiscal policy. The report also highlights the decoupling of FED and RBI’s policy rate hike cycle.

Focus of FDI

The report states that India has maintained its focus on Foreign Direct Investments (FDIs), with Gross FDI reaching above USD 350 billion in 2023.

India’s 401(K) Moment

The report shows that retail participation has increased through mutual funds, with SIP inflows.

Government Support for Corporate Profits

The report shows that there is a rise in corporate profits due to the government’s support. The snapshot contains a log scale indicating the rise in nominal GDP and earnings indexed to 100, from 1994 to 2022.

MNC Sentiment at Multiyear High

The report shows that the sentiment of multinational corporations (MNCs) is higher towards India, compared to China. Furthermore, the snapshot shows that India’s service export market share has accelerated since 2011. The report shows that India’s share in world goods export stood at 1.8 per cent and its share in world services export stood at 4.9 per cent in December 2022.