Morgan Stanley economists have projected India’s real GDP growth to be 6.7% in FY27 and 7% in FY28, citing geopolitical tensions. They anticipate a dip to 6.5% YoY in June 2026 due to West Asia’s energy shock and supply chain challenges. Chief India Economist at Morgan Stanley, Upasana Chachra, expects a gradual recovery towards trend growth by March 2027 as supply-side constraints ease.
Global conditions pose uncertainties, with sustained high oil prices potentially impacting growth negatively over time. The report emphasizes the importance of domestic demand amidst external risks and foresees policy support to safeguard growth. Despite external challenges, recent indicators suggest robust domestic demand, with urban consumption, government infrastructure spending, and service exports acting as buffers.
The report highlights the potential impact of elevated commodity prices on stability and inflation. It suggests limited pass-through to consumer prices but anticipates upward pressure on wholesale prices due to imported inflation and currency devaluation. The economist warns of risks from second-round effects, weather-related food inflation, and a widened current account deficit due to higher oil prices.
In response to external pressures, the Reserve Bank of India (RBI) is expected to maintain a neutral stance in FY27, balancing growth and inflation concerns. The RBI may employ non-interest rate measures to manage currency dynamics, such as tightening overseas direct investment norms and encouraging non-resident Indian deposits and foreign exchange inflows.
