The research report also mentioned the 2002-2007 cycle, when the capex growth outpaced consumption growth. Further, recovery in consumption was led by a pickup in urban consumption, followed by improvement in rural demand.
Morgan Stanley Research expects the policy direction to remain unchanged with support from capex growth (through infrastructure investment and manufacturing), maintaining macro stability, and targeted redistributive spending.
“In our view, the focus on infrastructure spending and increasing investment rate in the economy is the right strategy to ensure that the virtuous cycle of growth unfolds,” it said.
With an increase of nearly 9.5 million in the working-age population on an annual basis, the key is creating more non-farm jobs. In this context, while redistributive spending can provide short-term income/consumption support, it will not help in providing sustained income growth, the report added.
“In our view, increased job creation will help to shift surplus labour from agriculture to non agriculture jobs, which then helps to increase internal remittances (from urban to rural areas), providing support to rural demand,” the report said.
Source: business.outlookindia.com
