Morgan Stanley forecasts strong Indian GDP growth amid robust domestic demand (2024)

Morgan Stanley, a global investment banking firm, has expressed optimism about India's economic growth prospects, citing robust domestic demand. The firm remains positive about the growth outlook, expecting India's GDP to grow at 6.8% in the current financial year 2024-25 and 6.5% in 2025-26.

Inflation and Current Account Deficit

Morgan Stanley predicts that inflation will remain around 5% in the second quarter, before easing to 4.1% in the second half of 2024. For the next financial year, it anticipates retail inflation to average 4.5%. The firm expects the current account deficit to stay within 1-1.5% of GDP in 2025-26, supported by strong service exports.

Monetary Policy
Morgan Stanley foresees the Reserve Bank of India (RBI) maintaining the policy rates at 6.5% in the near future. The decision is influenced by a more conservative rate cut cycle by the US Federal Reserve and positive domestic factors such as improving productivity and rising investment rates.

"This is on the back of a shallower and deferred rate cut cycle for the Fed on the global front and improving productivity growth, a rising investment rate and inflation tracking above the target of 4 per cent on the domestic front," it explained.

Inflation continues to remain the main concern for the Reserve Bank of India's monetary policy committee members before it goes ahead and loosens its stance on key interest rates. As per the minutes of the latest monetary policy meeting released on Friday, there have been several mentions of uncertainties around inflation. Going ahead, food price uncertainties would continue to weigh on the inflation outlook, it said.

RBI's Inflation Concerns
The RBI's monetary policy committee members remain cautious about inflation uncertainties. Food price fluctuations continue to be a significant factor affecting inflation outlook. The RBI's primary goal is to stabilize inflation at the 4% target level.

RBI's Monetary Policy Actions
In its recent meeting, the RBI decided to keep the policy repo rate unchanged at 6.50%. This marks the seventh consecutive time the RBI has maintained the rate. The central bank had previously raised the repo rate by 250 basis points to 6.5% between May 2022 and the present to combat inflation.

India's Economic Growth
India's economy grew by 7.2% in 2022-23 and 8.7% in 2021-22. The International Monetary Fund's latest World Economic Outlook projects India to remain the fastest-growing among major economies in 2024.

Despite inflationary pressures, Morgan Stanley's positive outlook on India's growth underscores the country's resilience amid global economic challenges.

(With inputs from ANI)