Morgan Stanley upgrades India’s GDP growth forecast to 6.2% for FY26

Upasana Chachra, Chief India Economist at Morgan Stanley, said that it is upgrading its growth forecasts modestly to 6.2 per cent YoY (vs 6.1 per cent) for F2026 and 6.5 per cent YoY (vs 6.3 per cent) for F2027 in view of the de-escalation of US-China trade tensions, which improves the outlook for external demand at the margin.

India’s growth is anticipated to remain resilient, primarily supported by strength in domestic demand. This strength is expected to counter uncertainties emanating from the external environment, with broad-based consumption recovery and investment, particularly public and household capital expenditure, driving momentum.

A report by Morgan Stanley maintained that policy support is likely to continue through easier monetary policy while fiscal policy prioritizes capex. With inflation projected to remain benign and macro stability is anticipated to stay within a comfort zone, underpinned by robust buffers, Morgan Sanley said that the Indian economy can leverage internal engines and proactive policy to sustain its growth trajectory.

India’s growth cycle has been on a gradual cyclical recovery following a partially policy-induced slowdown in H2CY24.

Upasana Chachra, Chief India Economist at Morgan Stanley, said, “We upgrade our growth forecasts modestly to 6.2 per cent YoY (vs 6.1 per cent) for F2026 and 6.5 per cent YoY (vs 6.3 per cent) for F2027 in view of the de-escalation of US-China trade tensions, which improves the outlook for external demand at the margin.”

While the lingering uncertainty on the external front poses risks, Morgan Stanley said, domestic demand trends will be the key driver of India’s growth momentum. And within domestic demand, consumption recovery is expected to become more broad based with urban demand improving and rural consumption levels already robust. Consumption accounts for around 60 per cent of GDP and is the mainstay of the domestic demand story.

Morgan Stanley noted that private consumption growth recovered to 6.7 per cent YoY in QE December 2024 on a Q4 trailing basis (from 4.5 per cent in QE December 2023), and is likely to remain well supported in the coming quarters.