Morgan Stanley Upgrades India’s Growth Forecast: A Testament to Domestic Demand Resilience

Morgan Stanley Upgrades India’s Growth Forecast: A Testament to Domestic Demand Resilience

In a notable revision that underlines India's growing economic momentum, Morgan Stanley has upgraded its GDP growth forecast for the country to 6.2% in FY26 and 6.5% in FY27. This marks an upward revision from its previous estimates of 6.1% and 6.3%, respectively, and reinforces the view that India’s growth engine is increasingly powered by robust domestic demand, despite a fragile global environment.

Domestic Demand: The Core Driver

“We expect growth to remain resilient, supported by strength in domestic demand amidst uncertainty from external factors,” the global financial services giant noted in its recent report. This shift in focus—from global trade to domestic consumption and investment—highlights a structural evolution in the Indian economy.

Urban consumption is showing signs of revival, driven by improving employment figures and rising discretionary spending. Simultaneously, rural consumption remains strong, bolstered by government welfare programs, minimum support prices, and increased rural infrastructure spending.

On the investment front, public and household capital expenditures are set to be key contributors. Morgan Stanley also projects a gradual recovery in private corporate capex, which is crucial for job creation and long-term productivity gains.

Policy Tailwinds: Monetary and Fiscal Alignment

Morgan Stanley anticipates continued monetary policy support, expecting the Reserve Bank of India (RBI) to implement a cumulative 100 basis points easing in the current rate cycle. This includes two additional rate cuts of 25 basis points each, which would further ease borrowing costs for businesses and consumers.

The fiscal policy stance remains pro-growth as well, with a clear emphasis on capital expenditure (capex). The government’s budgeted plans for infrastructure expansion—spanning roads, railways, green energy, and digital infrastructure—are likely to stimulate long-term growth and crowd-in private investments.

Inflation Outlook: Under Control

Another encouraging sign is the benign inflation outlook. Morgan Stanley projects headline inflation to average 4% in FY26 and 4.1% in FY27, aided by easing food prices and a stable core inflation trend. A forecast for an above-normal monsoon in 2025 by the India Meteorological Department is expected to support agricultural output and keep food inflation contained, building healthy buffer stocks in the process.

This environment gives the RBI more room to act decisively on interest rates without risking price instability, creating an enabling backdrop for sustainable growth.

Global Context and Balanced Risks

The upgraded forecast is particularly significant when viewed against a backdrop of global economic uncertainty. Trade frictions, tariff disputes, and geopolitical realignments continue to affect global supply chains and investor sentiment. Yet, India’s macro stability and policy consistency have made it a reliable investment destination.

Morgan Stanley notes that risks to India’s growth are “evenly balanced.” On the upside, faster resolution of global trade uncertainties and stronger U.S. growth could further boost investor sentiment and accelerate the domestic capex cycle.

In Summary

India’s upgraded growth forecast by Morgan Stanley is a signal to international investors: India is not just riding global tides—it’s charting its own course through internal resilience and policy foresight. With a growing middle class, policy-driven infrastructure expansion, and a stable inflation environment, India’s economy is poised to offer a strong value proposition in a world full of volatility.

Source: [Morgan Stanley Research](https://www.morganstanley.com)