India's current economic boom similar to that of 2003-07? Morgan Stanley thinks so, lists 5 parallel trends

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Investment to outperform consumption: The brokerage observed that Gross fixed capital formation (GFCF) growth in India accelerated sharply from 8.2 percent in 2002 to 17.5 percent in 2004, and the pace of growth held firm at 16.2 percent in 2005-07. In that cycle, the fiscal deficit was already consolidated, the banking system’s non-performing loan issues were cleaned up and the economy was poised for a capex upswing, it added. This cycle too, investment growth has been stronger, said the brokerage.

The real GFCF growth continued to hold strong at 10.5 percent in Q4FY23, staying above the pre-Covid 2017-18 average of 9.6 percent. This has been mainly driven by public capex so far, as the corporate sector has been working through multiple shocks from previous years that have weighed on its ability to invest, added MS. Public capex leads initially, but private capex rapidly catching up: The brokerage also pointed out that policymakers’ concerted policy push on supply-side reforms in recent years has meant that real government fixed capex growth inflected higher from FY20.

Government fixed capex as a percentage of GDP rose from a trough of 3.6 percent in FY19 to 4.0 percent in FF21, again picking up ahead of private capex. In contrast, private capex rather than public capex drove the broader capex cycle in 2003-07, as favorable external demand conditions provided a strong uplift to private capex. However, the lagged increase in public capex to GDP meant infrastructure remained a key constraint for growth, said MS.