Morgan Stanley has raised its forecast for India’s GDP growth in 2025–26 following the 7.8 percent growth in the April–June quarter. The report expects forthcoming GST tax cuts, the festive season, and strong rural demand to boost domestic consumption and offset the decline in exports due to the US tariff hike.
The report states that the composition of growth is expected to shift, with public spending softening, external demand weakening—mainly goods exports—and private sector demand picking up. It estimates that the incremental drag from external demand at around 50 basis points could potentially be offset by likely GST cuts, which could boost growth by about 50 basis points.
Strong monsoon and kharif sowing levels indicate resilience in the agricultural sector and are expected to support buoyant agricultural growth. For FY 2025–26, Morgan Stanley has revised its real GDP growth forecast to 6.7 percent year-on-year from 6.2 percent projected earlier.
GDP growth improved to 7.8 percent year-on-year in the April–June quarter from 7.4 percent in the January–March quarter. Government and private consumption picked up pace to 7.5 percent and 7 percent year-on-year respectively, while gross fixed capital formation moderated to 7.8 percent.
The report notes continued strength in rural demand, supported by a favorable monsoon and sowing cycle, along with improved real wages due to moderating inflation. The government front-loaded expenditure on both revenue and capital fronts in the June quarter, supporting consumption and investment.
Net exports turned into a drag as imports grew faster than exports. Export growth picked up relative to the last quarter, led by potential front-loading of exports to the US ahead of tariff implementation, while exports to the rest of the world slowed in the April–June quarter.
