West Asia conflict may trigger $800 bn capex boost for India, but oil and fertiliser risks remain: Morgan Stanley

New Delhi [India]: The ongoing conflict in West Asia could emerge as both a challenge and an opportunity for India, with global brokerage projecting a sharp rise in domestic investments across energy, defence, fertilisers and data infrastructure, even as the country grapples with elevated risks from oil and fertiliser imports.

In its latest report Morgan Stanley said the geopolitical tensions are likely to accelerate India’s push towards supply chain resilience and domestic capacity creation, resulting in additional cumulative investments worth USD 800 billion over the next five years.

“As such, we raise our investment rate forecast to 37.5 per cent of GDP in F2030 (36.5 per cent previously), with incremental cumulative investments worth $800 billion over the next five years,” the report said.

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According to the report, nearly 60 per cent of this new capital expenditure is expected to be directed towards energy transition, defence manufacturing and data centres, which could strengthen India’s medium-term growth trajectory.

The report noted that India is likely to witness a renewed policy and investment push in sectors linked to strategic security, with defence spending expected to rise from 2 per cent of GDP to 2.5 per cent by FY2031. This is expected to boost domestic production and strengthen India’s manufacturing ecosystem under the government’s indigenisation drive.

India’s data centre sector could also emerge as a major beneficiary as global companies increasingly look for alternatives amid geopolitical uncertainty. The report said India’s policy framework around data localisation and digital infrastructure may position it as a preferred global destination for such investments.

On the energy front, the report highlighted that India’s 85 per cent crude oil import dependence and 50 per cent natural gas import reliance remain the biggest economic vulnerabilities amid prolonged regional tensions. It added that India is likely to respond through a “multi-pronged strategy” involving greater use of strategic petroleum reserves, coal gasification, renewable energy, electrification and faster rollout of nuclear power projects.

The fertiliser sector remains another pressure point. India continues to depend heavily on imports for phosphatic and potassic fertilisers, making the agriculture sector vulnerable to supply disruptions and price spikes.

“The central policy challenge is not to eliminate India’s external dependence overnight, but to reduce concentration risk, strengthen domestic buffers and improve resilience to repeated shocks,” the report said.

The report also flagged risks to India’s external account through remittances, noting that 38 per cent of India’s inward remittances still come from Gulf-linked economies. While prolonged instability could affect these flows, Morgan Stanley said India’s remittance base is becoming more diversified.

However, despite near-term risks, the report remained optimistic on India’s economic outlook, maintaining that the country’s real GDP growth is likely to remain in the 6.5-7 per cent range, supported by capex-led expansion.

Morgan Stanley said the conflict may ultimately push India to strengthen economic resilience, boost domestic manufacturing, and accelerate long-term structural reforms in critical sectors.