Explained: Why Morgan Stanley sees India’s growth recovering next year

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News:Morgan Stanley has released the Global Macro Outlook report.

Facts:

What does the report say?

  • The report has stated that the global economy is likely to recover starting with the first quarter of 2020.
  • The trade tensions and monetary policy are easing concurrently for the first time in seven quarters, lifting global growth. 
  • However,they have said that the main thrust of the recovery will come from the emerging markets instead of the US.

Report on India’s growth:

  • The report has said that India’s growth rate has been falling since 2017-18.This trend of deceleration has intensified in the recent past as reflected in the GDP growth rates.
  • However,the report expects India’s GDP to grow at 6.5% in the financial year 2020-21 and 6.9% in the financial year 2021-22 as against just 5% in the current financial year (2019-20).

Why India’s growth will recover?

The report has projected India’s growth will recover based on various reasons which are:

  • The monetary easing steps taken by the Reserve Bank of India(RBI) will start to take effect as the monetary transmission picks up and borrowers get loans at cheaper rate.
  • The sharp cut in corporate tax rates will allow the private firms to increase their capital expenditure over the next 12-18 months.

What more India needs to do?

  • Government should streamline personal taxes in line with the corporate tax cuts in the coming Union Budget to be announced in February 2020. 
  • Streamlining spending on infrastructure investment.The report believes that if the government spends on infrastructure projects such as roads,it would be a positive trigger to the private firms who will join as being in business would be more viable.
  • The report also expects that the government and other regulatory authorities to take steps to improve the flow of resources to the commercial sector.
  • Further,the report has said it is also crucial that the Indian government improves its public finances through large-scale strategic divestment.