Realism missing in Morgan Stanley’s pro-India report

Morgan Stanley is so upbeat about the Indian economy that its recent report seems to have been written by some minister or Bharatiya Janata Party leader. Not that there's anything wrong about the report; it is based on facts; it is only in the interpretation of the economic reality that the global financial services firm has gone slightly overboard.

“This India is different from what it was in 2013. In a span of 10 years, it has gained positions in the world order with significant positive consequences for the macro and market outlook,” the report said. That’s true; the ‘policy paralysis’ and listlessness of the Manmohan Singh era is over. This is Narendra Modi’s India. Often, risk taking had salutary effects, as in massive infrastructure spending, fiscal prudence against huge pressures of populism. At times, it cost the nation dearly like in the case of demonetization of high-currency notes in 2016 and the harsh, abrupt lockdown in 2020. The fact is that the Modi regime is committed to economic reforms, especially in the second term, which is illustrated by the Air India’s privatization. The Morgan Stanley report has underlined 10 major changes since 2014, including lowering of corporate tax rate and huge capital expenditure. Other positives include a rise in GST collection, expanding share of digital transactions as a percentage of GDP, direct transfer of subsidies to beneficiary accounts, the Insolvency and Bankruptcy Code, flexible inflation targeting, focus on FDI and high MNC sentiment. The report also said that manufacturing and capital spending as a percentage of GDP has been increasing continuously. India’s share in the export market is also estimated to grow more than double to 4.5 per cent by 2031.

Morgan Stanley is not wrong in being bullish about India, which has, indeed, turned the corner. Reforms, for instance, are not frowned upon, primarily because the opponents of liberalization like communist leaders and Leftwing intellectuals have been rendered irrelevant after the rise of Modi. The RSS and its affiliates don’t dare to challenge Modi, unlike when Atal Bihari Vajpayee was the prime minister.

Yet, the optimism has somewhat shadowed its realism. For example, it ignores the fact that FDI inflows into the country declined by 16 per cent to $71 billion on a gross basis in 2023-25. Rising unemployment continues to plague the country. Unsurprisingly, unicorns are coming into being regularly and fancy, super-luxury cars are selling fast, but youngsters and others are failing to find decent employment. Then there is India’s old Achilles’s heel—manufacturing. Twelve years after the National Manufacturing Policy (2011) aimed to make the sector contribute to 25 per cent of GDP by 2022, its share continues to be 16-17 per cent. As Bizz Buzz reported earlier, there was a 45 per cent decline in proposed industrial investments last year. It is nice to notice Morgan Stanley’s confidence in India which, it said “will emerge as a key driver for Asia and global growth.” But it will be predicated upon reforms. The government should not ignore this fact.