India to become second-largest contributor to global growth, says BofA Securities; here are key factors driving the growth

The government's focus on capex-led growth will also bode well for the domestic economy.

Bank of America Securities identified several key factors driving India's growth story. Driven by a robust capex cycle, evolving global supply chain dynamics, and a resilient growth model, India's economy is on the rise and set to outperform other global giants, said the global brokerage.

Consistent Economic Growth

India is projected to become the second-largest contributor to global growth in the coming years. Following the US, India has shown consistent economic performance, with an impressive 7 percent compound annual growth rate since December 1992.

Its balanced growth approach distinguishes it from other major Asian economies and reduces significant risks. Additionally, certain US and European companies are poised to benefit from India's expanding influence, said BofA.

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According to IMF forecast, India is expected to be the fastest-growing sizable economy in 2024-25. While China remains the primary driver of global growth, India is set to take the second spot, surpassing a slowing US.

India's contribution to global growth is likely to exceed that of all developed nations combined, excluding the US. Emerging markets, as a whole, are anticipated to account for three-quarters of global growth.

Scaling Manufacturing

India is poised to boost manufacturing in electronics, autos, pharma, and textiles, as the central government has implemented several structural reforms over the past five years, said the brokerage.

According to BofA Securities, government support and improved business conditions could make India a key player in exports and meeting local demand. This shift could also address long-standing issues like stagnant GDP contributions from manufacturing, which has been stuck in the 15-18 percent range over past decade, and a high current account deficit.

Infra, Capex Thrust

The government's focus on capex-led growth will also bode well for the domestic economy. India is in the middle of a multi-year capex upcycle, driven by government capex first, followed by real estate upcycle and finally private and PSU capex upcycles.

Major capacity increases in transport infrastructure are expected, along with significant improving basic infrastructure like housing, gas, water, sanitation, and electricity access, said BofA.

Rising Consumption

BofA Securities posits that India is the middle of a consumption story as a result of rising GDP per capita, increasing aspirations, and improving choices with democratization of access.

According to the brokerage, India stands at where China was six or seven years ago, in terms of reaching an inflection point of improving discretionary income leading to consistent spends towards life-style upgrades.

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