Morgan Stanley Raises India’s GDP Forecast, Sees GST Cut Boosting Demand

Morgan Stanley has raised India's GDP growth forecast for 2025-26, powered by the robust 7.8 per cent growth seen in the April-June quarter. The company believes the impending GST cuts will boost domestic demand, possibly countering the deceleration in exports due to the rise in US tariffs.

“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.

Referring to the agricultural sector, Morgan Stanley cited the good monsoon and kharif sowing levels as a sign of resilience, which should continue to drive steady growth in farming.

For the fiscal year 2025-26, the bank upgraded its real GDP growth estimate to 6.7 per cent year-on-year from 6.2 per cent.

The report noted that GDP growth picked up to 7.8 per cent year-on-year in the April-June quarter from 7.4 per cent in the January-March quarter. The information revealed government and private consumption increased at 7.5 per cent YoY and 7 per cent YoY, respectively, while gross fixed capital formation slowed to 7.8 per cent but remained robust relative to the previous quarter. Rural demand strength, supported by favorable monsoon and sowing trends, as well as better real wages with easing inflation, has driven higher levels of consumption, the report added.

Moreover, the government front-loaded spending on capital and revenue in the quarter that ended June 2025, further boosting consumption and investment.

Net exports also proved to be a bane for growth, with imports growing faster than exports. While growth in exports was better than the last quarter, it was dominated by possible front-loading of shipments to the US before tariffs were implemented, while exports to other world markets slowed during the April-June quarter, the report further stated.