India is on the cusp of a huge growth cycle, much like 2003 to 2008 as the government's pro-investment policies innocent capex cycle, higher productivity, benign macros, current account deficit and better export prospects come together, a recent paper by Morgan Stanley's Chief Asia Economist, Chetan Ahya said.
“During the 2003 to 2007 period, global trade volume growth was at an average of about 6 percent real. And we are already seeing that on a base effect; adjusted basis global growth is right now above 4 percent on a real basis. So we are seeing some semblance of global trade dynamics, also similar to 2003 to 2007 right now,” Ahya said.
Ahya sees the investment to gross domestic product (GDP) ratio (very crucial for growth) rising by six percentage points in the next five years. And GDP growth to average 7 percent in the next five years.
“We are expecting next year's GDP growth to be strong and effectively what we will see is global GDP index level will go above pre-COVID path. So we are expecting a similar kind of global growth environment,” he added.
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Morgan Stanley has forecasted the global GDP will grow at around 4.5 percent in 2022 and that will be after we have already reached the pre-COVID path in this quarter, Ahya said.
When asked whether consumption is important from a demand standpoint, he replied, “Consumption growth will be strongly related to a 10-year period.”
But consumption growth has to be driven by income growth, which comes through if there is capex and job creation. During 2003-2007, there was a significant pickup in urbanisation and migration from rural to urban. “That virtuous dynamic will actually come through in this cycle too,” he said. So consumption growth will pick up but on a relative basis, investment growth should outperform and with investment GDP will rise.
“So just by the fact that we are saying consumption to GDP could probably soften a bit, it doesn't mean that growth rates will be low. Growth rates will still be stronger than what you had seen in the last few years,” he added.
For the full interview, watch the accompanying video.
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