Morgan Stanley, a leading global brokerage, has revised its forecast for India's GDP growth, projecting it to reach 6.8 percent in the fiscal year 2025, up from the previous estimate of 6.5 percent. This upward revision is attributed to sustained momentum in industrial and capital expenditure activities. The brokerage also anticipates a growth rate of 6.8 percent for the calendar year 2024, a rise from the previous projection of 6.4 percent.
The firm expects the GDP growth to hover around 7 percent in the quarter ending March 2024, with Gross Value Added (GVA) growth at 6.3 percent, resulting in full-year GDP growth of 7.9 percent for the fiscal year 2024. It foresees a broad-based growth trajectory and foresees the gaps between rural-urban consumption and private-public capital expenditure to narrow down in the fiscal year 2025. This prolonged expansion cycle is anticipated to be fueled by enhancements in productivity growth, ensuring continued macroeconomic stability.
While the trajectory of inflation is expected to moderate, and the current account deficit remains benign, there's room for a gradual easing cycle. However, Morgan Stanley predicts a delay in the initiation of this cycle, now anticipated in the third quarter of 2024, compared to the earlier expectation of the second quarter. The brokerage also outlines potential risks of a delay or the absence of easing, driven by stronger-than-expected trends in growth, capital expenditure, and productivity, which could necessitate higher neutral real rates.
Furthermore, the firm emphasizes the resilience of domestic demand, which is a fundamental driver of the optimistic economic outlook. Private consumption, constituting a significant portion of GDP, has been steadily recovering, though it's still catching up to pre-pandemic levels.