Morgan Stanley Raises India’s FY26 GDP Forecast, Says GST Cuts to Boost Demand

New Delhi – Global brokerage firm Morgan Stanley has revised India’s GDP growth forecast for 2025–26 upwards, citing stronger-than-expected growth in the April–June quarter and the likely impact of upcoming GST cuts, which are expected to stimulate domestic demand and cushion the drag from weaker exports caused by higher US tariffs.

“We expect impending GST tax cuts, the festive season, and strong rural demand trends to provide a boost to domestic consumption. Growth composition is likely to shift, with public spending softening, external demand weakening (mainly goods exports), and private sector demand strengthening,” the report said.

The firm estimated that while external demand could shave off nearly 50 basis points (bps) from growth, this would be offset by GST reductions, which could add about 50 bps.

Morgan Stanley now projects India’s real GDP growth for FY26 at 6.7% year-on-year, up from its earlier estimate of 6.2%.

The upgrade follows India’s 7.8% GDP growth in Q1 (April–June), compared to 7.4% in the previous quarter. Both government and private consumption accelerated — rising 7.5% and 7% year-on-year, respectively. Gross fixed capital formation moderated to 7.8% but still remained healthy.

The report also noted resilience in the agricultural sector, supported by a good monsoon, higher kharif sowing, and improved rural wages due to easing inflation — all of which have strengthened consumption.

Government spending was front-loaded during the June quarter across both revenue and capital accounts, helping sustain demand and investment.

On the external side, net exports became a drag as imports outpaced exports. Export growth did improve versus the previous quarter, driven largely by shipments to the US ahead of new tariff measures, while exports to other regions slowed.

With inputs from IANS