Morgan Stanley Revises India’s Growth Outlook for FY26 and FY27 on Trade Tension Easing
Morgan Stanley, a leading global financial services firm, has modestly revised its growth forecast for the Indian economy. The firm now projects a 6.2% year-on-year GDP growth for FY2026, up from 6.1%, and 6.5% for FY2027, up from 6.3%.
“We upgrade our growth forecasts modestly to 6.2% YoY (vs. 6.1%) for FY2026 and 6.5% YoY (vs. 6.3%) for FY2027 in view of the de-escalation of US-China trade tensions, which improves the outlook for external demand at the margin,” the report stated.
The report also highlighted that domestic demand will remain the key driver of India’s growth, especially amid ongoing global economic uncertainties.
Morgan Stanley emphasized that domestic demand will remain the key driver of India’s growth momentum, especially as external uncertainties persist. The financial services firm noted that policy support from the government is expected to continue, further strengthening domestic demand and overall economic growth.
“Policy support is likely to continue through easier monetary policy, while fiscal policy prioritises capital expenditure. Macro stability is expected to remain within the comfort zone, supported by robust buffers,” the report stated.
Within domestic demand, the report highlighted a broad-based consumption recovery, with urban demand improving and rural consumption already robust.
On the investment front, Morgan Stanley pointed out that public and household capital expenditure are currently driving growth, while private corporate capex is expected to recover gradually over time.
Urban Consumption, Public Capex to Lead India’s Growth; RBI May Opt for Policy Easing
In its latest report, Morgan Stanley expects a broader recovery in domestic consumption, with urban demand strengthening and rural consumption already showing robustness. On the investment side, public and household capital expenditure are seen as key growth drivers, while private corporate capex is expected to recover gradually.
On the policy front, the brokerage anticipates that the Reserve Bank of India (RBI) may proceed with a deeper easing cycle, citing slowing growth and controlled inflation as enabling factors.
“On the fiscal policy front, we expect the consolidation path laid down in the Budget to be maintained in our base case, with a focus on pushing capex,” the report added.
The RBI has projected India’s GDP growth at 6.5% for FY26, aligning closely with Morgan Stanley’s revised forecast of 6.2%.