Morgan Stanley Revises India’s FY26 GDP Growth Forecast, Raises to 6.7%

Morgan Stanley has upgraded its forecast for India’s GDP growth in the financial year 2025-26 to 6.7 percent, up from its earlier estimate of 6.2 percent. The revision comes on the back of a strong performance in the April–June quarter of FY 2024-25, during which the economy expanded by 7.8 percent. The global financial services firm attributes this upgrade to robust domestic demand, upcoming cuts in the Goods and Services Tax (GST), and resilience in rural consumption.
 
According to the report, the anticipated GST reductions are expected to provide a meaningful boost to household spending, especially ahead of the festive season. This, combined with consistent rural demand and a supportive monsoon, is likely to strengthen overall consumption. Morgan Stanley estimates that while higher US tariffs could exert a drag of around 50 basis points on external demand, the same could be offset by the positive impact of lower GST rates.
 
The April–June quarter saw a healthy rise in both private and government consumption, growing by 7 percent and 7.5 percent year-on-year, respectively. Although gross fixed capital formation moderated slightly to 7.8 percent, it remained at a strong level, signaling ongoing investment activity. The report also noted that government spending was front-loaded during the quarter, providing a further lift to consumption and capital formation.
 
On the external front, net exports turned into a drag on growth, as imports outpaced exports. Export growth saw a short-term uptick due to front-loaded shipments to the US ahead of new tariffs, but shipments to other global markets remained subdued. Despite these external headwinds, Morgan Stanley remains optimistic that India’s domestic economy will continue to drive momentum, keeping the growth trajectory intact for the rest of the fiscal year and into FY26.