India's growth unlikely to match China's historic levels: Morgan Stanley
Morgan Stanley's Chief Asia Economist, Chetan Ahya, suggests that India may not match China's historic growth rates of 8-10%. Speaking to Bloomberg, Ahya forecast a steady long-term growth rate of 6.5-7% for India's gross domestic product (GDP). He also noted that despite efforts to make itself investment-friendly, India is yet to challenge its Asian rival as a global manufacturing powerhouse.
Infrastructure and workforce challenges slow down India's progress
Ahya pointed out that India's economic advancement is hindered by insufficient infrastructure and a workforce lacking essential skills. These obstacles are likely to limit India's growth to a solid but lower rate of 6.5-7%, compared to China's growth of 8-10% in the past. Despite these hurdles, Morgan Stanley remains optimistic about India's future, comparing its current growth phase to the mid-2000s investment-driven boom.
Signs of economic growth in India despite China's dominance
According to Ahya, early signs of economic progress in India are evident through increased capital inflows and a growing share in global foreign direct investment. However, he believes it is less likely for India to rival or intensely compete with China in the manufacturing sector. This is due to China's superior position in manufacturing and its foray into emerging sectors like renewable energy, space exploration, and semiconductors.
The impact of India's growth on RBI's interest rate policy
Ahya indicates that robust growth in India could influence when the Reserve Bank of India (RBI) decides to cut interest rates this year. While Morgan Stanley predicts a 'shallow rate cut cycle' beginning in June, unexpected growth could potentially postpone or even cancel these cuts. RBI Governor Shaktikanta Das has stated that he would not consider reducing rates unless inflation consistently stays around the 4% target. Current data reveals inflation is still surpassing this target by more than 1%.
