Morgan Stanley Ups India’s GDP Growth Forecast to 6.7% for FY26

Morgan Stanley has revised its GDP growth forecast for India to 6.7% for FY 2025–26, an upward revision from its earlier estimate of 6.2%. The revision follows India’s robust economic performance in the April–June 2025 quarter, where GDP grew by 7.8%, and expectations that upcoming GST cuts will stimulate domestic demand during the upcoming festive season.

What’s Driving the Forecast Upgrade

Strong Q1 Performance

The standout 7.8% growth in Q1 FY26 has been attributed to,

• Government consumption rising by 7.5% YoY
• Private consumption growing by 7% YoY
• Gross Fixed Capital Formation (GFCF) at 7.8%, indicating healthy investment momentum
• Front-loaded government expenditure, which boosted demand and capital formation

Domestic Demand Outlook

The report highlights that domestic consumption will remain strong, driven by,

• Impending GST rate cuts
• Festive season spending

Resilient rural demand, supported by a good monsoon and strong kharif sowing

Offset to External Weakness

While external factors remain a concern, especially with,

• Weaker exports to global markets
• Higher US tariffs, which have begun to affect India’s trade competitiveness
• The report states that the net drag from external demand (about 50 basis points) could be offset by consumption gains from GST cuts.

Export Trends

Export growth in Q1 was supported by,

• Front-loading of shipments to the US, ahead of tariff implementation
• However, exports to other regions slowed, and imports outpaced exports, turning net exports into a growth drag

Sectoral Support and Rural Stability

• Agriculture Holding Steady
• Good monsoon patterns
• Strong kharif crop sowing
• GST Reform Impact
• Improve consumer affordability
• Support small businesses and consumption-led growth

Key facts for exam

• New GDP forecast (FY26): 6.7% (earlier: 6.2%)
• Q1 GDP growth FY26: 7.8%
• Drivers: GST cuts, festive demand, rural strength
• Private consumption: +7% YoY
• Government consumption: +7.5% YoY