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

New Delhi, Sep 1 (IANS) Morgan Stanley has raised its forecast for India’s GDP growth in 2025-26 on the back of the robust 7.8 per cent growth in the April-June quarter and expects the forthcoming cuts in GST to spur domestic demand, which would offset the decline in exports due to the US tariff hike.

"We expect impending GST tax cuts, the upcoming festive season and strong trends in rural demand to provide a fillip to domestic demand. As such, we expect the composition of growth to change with public spending softening, external demand weakening (mainly goods exports) and private sector demand picking up," the report said.

"We estimate that the incremental drag from external demand at around 50 basis points (bps) could potentially be offset from likely GST cuts, which could boost growth by about 50bps," it added.

The report also highlighted that the strong monsoon and the kharif sowing levels indicate resilience in the agricultural sector, and should likely support buoyant agricultural growth going forward.

For the financial year 2025-26, Morgan Stanley has revised its real GDP growth upwards to 6.7 per cent year-on-year from 6.2 per cent projected earlier.

The report points out that GDP growth improved to 7.8 per cent year-on-year in the April-June quarter of the current financial year, from 7.4 per cent in the January-March quarter. The internals indicate that both government and private consumption picked up pace to 7.5 per cent YoY and 7 per cent YoY, respectively, while gross fixed capital formation moderated to 7.8 per cent, despite remaining healthy relative to last quarter levels. The continued strength in rural demand, supported by a favourable monsoon and sowing cycle, in addition to improved real wages on the back of moderating inflation, has bolstered consumption levels, the report states.

Moreover, the government has front-loaded expenditure on both the revenue and capital fronts in the quarter ended June '25, which has supported consumption and investment levels.

Net exports turned into a drag as imports grew at a faster pace than exports, even as the growth rate in exports picked up relative to last quarter's levels. The uptick in exports was led by a potential front-loading of exports to the US, ahead of the implementation of the tariffs, while exports to the rest of the world slowed in the April-June quarter, the report added.

--IANS

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