Growth Reboot: India Gets GDP Upgrade For FY26, FY27

In a notable affirmation of India’s macroeconomic stability and resilience, Morgan Stanley has upgraded India’s GDP growth forecast for FY26 to 6.2% and for FY27 to 6.5%, from an earlier estimate of 6% and 6.3%, respectively. The upgrade, announced on May 21, 2025, comes when global economic uncertainty begins to ease, especially due to cooling tensions between the US and China. “India is regaining momentum and remains best placed among major Asian economies,” said Chetan Ahya, Chief Asia Economist at Morgan Stanley. (Source: Business Today)

This revision underscores growing global investor confidence in India’s economic trajectory, aided by benign inflation, potential monetary policy easing, and reduced geopolitical risks.

What Prompted the Upgrade?

1. De-escalation of US-China Trade Tensions

For the past few years, persistent trade disputes between the world’s two largest economies have suppressed global growth. The recent thaw in US-China relations has renewed investor confidence across Asia, creating a more stable backdrop for emerging markets like India.

Morgan Stanley’s base case now assumes reduced risk of global trade fragmentation, helping bolster Asian supply chains where India is gaining share.  (Source: Economic Times) 

This improves India’s export outlook and makes it an increasingly attractive hub for global manufacturing investments looking for diversification beyond China.

2. Benign Inflation and Policy Easing

India has seen inflation moderating, with headline CPI inflation falling to 4.8% in April 2025, within the RBI’s comfort range. This gives policymakers more leeway for interest rate cuts—a key growth accelerator.

Morgan Stanley expects the RBI to start cutting rates by late 2025, which could lower the cost of capital for businesses, boost private investment, and encourage consumption.

3. Favorable Demographics and Consumption

India’s youthful population and a rising middle class remain long-term structural strengths. Consumer spending, especially in services and urban discretionary segments, is rebounding. According to Statista, India’s consumer market is projected to surpass $6 trillion by 2030, from $3.6 trillion in 2023.

This consumption-led momentum adds to India’s resilience, especially compared to export-heavy economies more vulnerable to global demand swings.

4. Resilient Domestic Demand and Reforms

India’s investment-to-GDP ratio improved from 29.2% in FY21 to 31.4% in FY24, driven by government-led infrastructure spending and corporate capex.

Reforms such as the Production Linked Incentive (PLI) schemes and improvements in business ease are also creating tailwinds for long-term productivity growth.

What It Means for India

1. Improved Fiscal Space

Higher GDP growth means better tax collections. This could give India more fiscal room to invest in infrastructure and social spending without breaching its fiscal deficit targets. According to the Economic Survey 2024, every 1% increase in GDP growth improves tax revenue by around 0.6%.

2. Boost to Equity Markets

Morgan Stanley’s outlook on Indian equities is also bullish, calling the recent market pullback a “long-term buying opportunity.”  The MSCI India index has outperformed most Asian peers over the past year, and improved growth forecasts could lead to higher earnings revisions for Indian corporates. India’s market cap has already crossed $5.6 trillion, making it the 4th largest equity market globally.  (Source: BSE, as cited by NDTV Profit) 

3. Stronger Case for FDI and Global Capital Inflows

As global investors diversify away from China, India has become a top destination for foreign direct investment with its stable currency, improving macro fundamentals, and policy continuity. According to DPIIT, FDI equity inflows into India stood at $47.7 billion in FY24, with anticipated acceleration in FY25–26.

4. Positive Employment Impact

Higher growth implies a pickup in formal sector job creation, especially in construction, manufacturing, and services. This is vital given that unemployment remains a concern, with CMIE data showing urban unemployment at 6.7% as of April 2025.  

Morgan Stanley’s upgraded forecast for India is not just an endorsement of short-term data but a reflection of deep structural strengths. With macro stability, a pro-reform government, fiscal support, and a more stable global trade environment, India appears better poised than most emerging markets to capitalize on global tailwinds.

As the world’s supply chains recalibrate and the investment cycle strengthens, India has a genuine opportunity to leapfrog into a sustained 6–7% growth phase—an inflection point that could redefine its economic standing for decades.

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