Morgan Stanley ups India’s GDP growth forecast, expects cut in GST to spur demand

Morgan Stanley has revised upward its projection for India’s economic expansion in 2025-26 following stronger-than-expected 7.8% GDP growth during the April-June quarter. Analysts anticipate upcoming reductions in Goods and Services Tax (GST) rates will stimulate domestic consumption, counterbalancing potential export declines linked to recent US tariff adjustments.

The financial institution’s analysis suggests forthcoming tax reforms, seasonal consumer spending patterns, and strengthening rural demand will drive private sector activity. “Growth dynamics are expected to shift as government expenditure moderates, external demand softens, and private consumption accelerates,” the report noted, adding that projected GST reductions could neutralize trade-related headwinds by contributing approximately 50 basis points to growth.

Agricultural indicators remain positive, with monsoon performance and kharif crop planting levels supporting expectations of sustained rural economic vitality. This reinforces confidence in continued growth within the farm sector.

The revised forecast raises India’s 2025-26 GDP growth expectation to 6.7% year-on-year, up from the previous 6.2% estimate. Economic acceleration during the first quarter stemmed from multiple factors: government consumption rose 7.5% year-on-year, private consumption increased 7%, and fixed capital formation maintained robust levels at 7.8%. Strengthening rural purchasing power—fueled by moderating inflation and improving real wages—complemented this expansion.

Front-loaded government spending in both capital and operational expenditures during April-June provided additional momentum. Meanwhile, net exports exerted downward pressure as import growth outpaced export expansion, despite temporary export surges to the US ahead of tariff implementation that partially offset slower global demand.

(With inputs from IANS)