'Oil dependence down, current account stable': Why Morgan Stanley MD is bullish on India
'In the last 10 years, we have completely transformed this. Our oil dependency has gone down by almost 60%,' says Morgan Stanley's Ridham Desai
- Nov 2, 2025,
- Updated Nov 2, 2025 8:29 AM IST
Morgan Stanley's Managing Director and Chief India Equity Strategist Ridham Desai believes India's economic structure has undergone a quiet but fundamental transformation. Desai said that India's once chronic current account deficit has nearly vanished, thanks to a dramatic reduction in oil dependency and the rise of new export engines like global capability centres (GCCs).
"There's a fundamental change that has happened in India, and it is not what people in this room are thinking," Desai said while speaking at the Business Standard BFSI Summit. "The fundamental change has happened on our saving deficit or what we call as current account deficit."
He explained that India's current account deficit — the gap between savings and investments — was historically between 2.5% and 5%, largely because of its heavy dependence on imported energy and limited exports. "We had very little to sell to the world, and we had to import our energy requirements. So at any point in time, we ran a current account deficit," he said.
Desai recalled that in 2008, when oil prices spiked to $148 a barrel, India's import bill ballooned to $140 billion, nearly 14% of GDP, forcing the rupee to depreciate and markets to tumble. "Nobody on the planet will fund 14% of your GDP," he said.
Since then, he said, the situation has changed dramatically. "In the last 10 years, we have completely transformed this. Our oil dependency has gone down by almost 60%." He noted that while India imported 900 million barrels of oil when it was a $1 trillion economy in 2008, it now imports 1.7 billion barrels on a $4 trillion economy. Even if oil returned to $140 a barrel, he said, "it will still only be about 6% of our GDP. Oil is no longer consequential to our current account."
Desai attributed this change to two key shifts — reduced energy dependency and a surge in services exports led by global capability centres (GCCs). "What we have seen in the last five years is a big boom in what we call as GCCs or Global Capability Centers. They exported $70 billion of services in the last 12 months. This is a secular shift that has happened on the planet," he said, adding that the figure could double within the next four to five years.
"These GCC exports are unlike IT services, which are cyclical. This is secular. So as a consequence of lower dependence on imported fuel and the emergence of a secular export for India, our current account deficit now is largely less than 1%, probably 0.5% of GDP," he said. "And 0.5% is about $20 billion — loose change in the global markets."
Desai said that this shift has fundamentally altered India's external dynamics and reduced its vulnerability to volatile equity market flows. "We are no longer as dependent on FPI flows because FDI has become more viable. This has completely altered India's external dynamic," he said.
He also highlighted another structural shift — India's move to flexible inflation targeting in 2015, which he said has brought down inflation volatility to among the lowest in the world. "Forget headline inflation — volatility is the lowest in the world. When inflation goes down, your growth and interest rate volatility go down. And if your growth volatility is lower, equity valuations look very attractive."
According to Desai, this stability will allow India to sustain lower real interest rates going forward, which in turn will boost equity valuations. "Historically, we have had to run higher real rates for fear of our current account deficit widening. Now we can run lower real rates, which means interest rates in India will be lower than they have been historically," he said.
Morgan Stanley's Managing Director and Chief India Equity Strategist Ridham Desai believes India's economic structure has undergone a quiet but fundamental transformation. Desai said that India's once chronic current account deficit has nearly vanished, thanks to a dramatic reduction in oil dependency and the rise of new export engines like global capability centres (GCCs).
"There's a fundamental change that has happened in India, and it is not what people in this room are thinking," Desai said while speaking at the Business Standard BFSI Summit. "The fundamental change has happened on our saving deficit or what we call as current account deficit."
He explained that India's current account deficit — the gap between savings and investments — was historically between 2.5% and 5%, largely because of its heavy dependence on imported energy and limited exports. "We had very little to sell to the world, and we had to import our energy requirements. So at any point in time, we ran a current account deficit," he said.
Desai recalled that in 2008, when oil prices spiked to $148 a barrel, India's import bill ballooned to $140 billion, nearly 14% of GDP, forcing the rupee to depreciate and markets to tumble. "Nobody on the planet will fund 14% of your GDP," he said.
Since then, he said, the situation has changed dramatically. "In the last 10 years, we have completely transformed this. Our oil dependency has gone down by almost 60%." He noted that while India imported 900 million barrels of oil when it was a $1 trillion economy in 2008, it now imports 1.7 billion barrels on a $4 trillion economy. Even if oil returned to $140 a barrel, he said, "it will still only be about 6% of our GDP. Oil is no longer consequential to our current account."
Desai attributed this change to two key shifts — reduced energy dependency and a surge in services exports led by global capability centres (GCCs). "What we have seen in the last five years is a big boom in what we call as GCCs or Global Capability Centers. They exported $70 billion of services in the last 12 months. This is a secular shift that has happened on the planet," he said, adding that the figure could double within the next four to five years.
"These GCC exports are unlike IT services, which are cyclical. This is secular. So as a consequence of lower dependence on imported fuel and the emergence of a secular export for India, our current account deficit now is largely less than 1%, probably 0.5% of GDP," he said. "And 0.5% is about $20 billion — loose change in the global markets."
Desai said that this shift has fundamentally altered India's external dynamics and reduced its vulnerability to volatile equity market flows. "We are no longer as dependent on FPI flows because FDI has become more viable. This has completely altered India's external dynamic," he said.
He also highlighted another structural shift — India's move to flexible inflation targeting in 2015, which he said has brought down inflation volatility to among the lowest in the world. "Forget headline inflation — volatility is the lowest in the world. When inflation goes down, your growth and interest rate volatility go down. And if your growth volatility is lower, equity valuations look very attractive."
According to Desai, this stability will allow India to sustain lower real interest rates going forward, which in turn will boost equity valuations. "Historically, we have had to run higher real rates for fear of our current account deficit widening. Now we can run lower real rates, which means interest rates in India will be lower than they have been historically," he said.