World financial services giant Morgan Stanley has updated its GDP growth estimates for India, predicting a 6.2% growth rate for FY26 and 6.5% for FY27.
This is a positive upgrade from its previous forecast of 6.1% and 6.3%, respectively. The company credited this increase with robust domestic demand, which it expects to be the main driver of economic growth in spite of continuing global uncertainties.
In its recent report, the brokerage pointed out that India's growth path is poised to remain steady, supported by a strong internal demand scenario. "We anticipate growth to be resilient, backed by domestic demand strength in the face of uncertainty from the external environment," it stated.
The report further stated that policy support will probably remain supportive. Morgan Stanley expects ongoing monetary ease and fiscally led priority on capital spending. "Policy support to persist through looser monetary policy while fiscal policy puts capex priority. Macro stability to be in comfort zone with strong buffers," the note added.
On the spending side, the brokerage anticipates a wider recovery led by urban demand, while rural consumption is already displaying resilience. It also identified public and household capital spending as drivers of growth, with private corporate investment picking up gradually.
Inflation, as per the report, is expected to remain moderate. This is thanks to modest food inflation and firm core inflation trends. The India Meteorological Department's prediction of an above-average monsoon in 2025 is likely to bolster farm production, refill buffer stocks, and maintain food prices stable.
Morgan Stanley is estimating headline inflation to be an average of 4% in FY26 and marginally higher at 4.1% in FY27. "We believe inflation will continue to remain firmly below the 4 per cent mark during the next few months," the report added.
With growth slowing and inflation under control, Morgan Stanley is forecasting a more dovish tone from the Reserve Bank of India (RBI). The brokerage has drawn a complete rate cut of 100 basis points, including two incremental cuts of 25 basis points each as part of the current easing cycle. It also anticipates the RBI continuing to employ other tools—like liquidity measures and regulatory measures—to augment the economy.
On the fiscal front, the note reiterated hopes that the government will stick to the path of consolidation as laid out in the Union Budget with an intense emphasis on investment in infrastructure.
On the risk side, the brokerage observed that prospects for growth seem even-handed. It further observed that a quicker resolution of international trade tensions and improved growth in the U.S. could further enhance business sentiment and speed up the investment cycle.
Read also| SBI Plans to Raise $3 Billion from Overseas Markets in FY26
Read also| India-UK Free Trade Agreement Poised to Double Textile and Apparel Exports by 2030
