Morgan Stanley Research, in its latest report on Monday, predicted a promising 6.5% economic growth for India in fiscal years 2024 and 2025. The growth, according to the report, is primarily driven by solid domestic fundamentals. The 2024 India Economics Outlook report pointed out that strong domestic demand, supported by healthy corporate and financial sector balance sheets and policy reforms, will be key contributors to India’s growth, even as the global economy faces a slowdown.
This projection comes against the backdrop of escalating tensions in Israel, which could affect global oil prices, potentially impacting inflation and fiscal deficits. Morgan Stanley’s forecast aligns with the Reserve Bank of India’s (RBI) estimation of a 6.5% growth for FY24. In contrast, Moody’s Investor Services has recently pegged India’s economic growth at 6.7% for FY24, citing the country’s resilience in the face of a global slowdown, buoyed by strong domestic demand.
The International Monetary Fund (IMF) also revised its FY24 growth forecast for India upwards to 6.3% from 6.1% in July, reflecting better-than-expected consumption in the first quarter.
Morgan Stanley expects headline inflation to decrease, projecting a fall from 5.4% in FY24 to 4.9% in FY25. The firm anticipates that the RBI will maintain steady interest rates until the first half of 2024, followed by a gradual rate cut cycle starting from June 2024, as inflation continues to moderate. The report predicts two rate cuts of 25 basis points each, keeping real policy rates averaging around 100 basis points in 2024.
The report also suggests that strong political support for reform measures and enhanced external demand could accelerate India’s growth. However, it notes potential risks, including a delay in the capital expenditure (capex) cycle due to reduced business confidence from unforeseen political outcomes or external environmental factors.
Morgan Stanley’s outlook remains optimistic about the Indian economy, forecasting an increase in private consumption growth, a resurgence in private capex, and stable export trends. This growth projection assumes a well-balanced policy response from the Indian authorities.