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Morgan Stanley: India's GDP Growth to Hit 6.7% in FY27, RBI to Hold Rates

Morgan Stanley projects India's real GDP growth at 6.7% in FY27 and 7% in FY28, with growth troughing at 6.5% in Q2 2026 due to geopolitical tensions and high oil prices. The report expects the RBI to remain on pause this fiscal, using non-rate measures to manage external pressures. Urban demand, government capex, and services exports will provide offsets, though sustained high oil prices could widen the current account deficit. The West Asia energy shock is expected to be most pronounced in the quarter ending June 2026.

Key Points: India GDP Growth Projected at 6.7% in FY27: Morgan Stanley

  • India GDP forecast at 6.7% for FY27
  • RBI likely to pause rates this fiscal
  • West Asia energy shock to impact growth
  • Urban demand and govt capex to provide offsets
2 min read

India's GDP growth projected at 6.7 pc in FY27, RBI to hold rates this fiscal: Morgan Stanley

Morgan Stanley forecasts India's GDP growth at 6.7% in FY27 amid geopolitical tensions, with RBI likely to hold rates and use non-rate measures.

"Global conditions remain fluid, with elevated uncertainty. Sustained high oil prices could trigger non-linear and progressively larger impacts on growth. - Upasana Chachra"

New Delhi, May 13

Morgan Stanley economists said on Wednesday they forecast India's real GDP growth at 6.7 per cent in FY27 and 7 per cent for FY28 amid geo-political tensions, adding that the RBI policy measures would likely remain supportive to minimise damage to growth.

The West Asia energy shock is most pronounced in quarter ending June 2026, when growth troughs at 6.5 per cent YoY amid elevated commodity prices and lingering supply chain frictions.

"Thereafter, as supply-side constraints ease and commodity prices moderate, we expect a gradual normalisation in activity, with growth converging to trend by March 2027," said Upasana Chachra, Chief India Economist at Morgan Stanley.

"That said, global conditions remain fluid, with elevated uncertainty. Sustained high oil prices could trigger non-linear and progressively larger impacts on growth, as the burden on households and firms intensifies over time, leading to cutbacks in consumption and investment," Chachra added.

The report expects growth to hinge on domestic demand amid external uncertainty.

"While the starting point of macro stability is favourable, prolonged supply disruptions and elevated commodity prices are likely to erode stability. Policy will likely remain supportive to minimise damage to growth," it noted.

Despite a weaker external backdrop, April activity indicators show resilience, supported by strong domestic demand. While the ongoing conflict and higher oil prices will likely weigh on growth, "we expect outcomes to exceed earlier expectations," said report.

Urban demand, government capex on infrastructure/defence, and services exports should provide offsets. Commodity passthrough to CPI should remain limited, although WPI pressures may rise due to imported inflation and currency depreciation.

"We continue to monitor second-round effects and food inflation risks from weather and input availability. Higher oil prices could widen the current account deficit to 1.8 per cent of GDP, while slower capital inflows may keep the BoP in deficit for a third consecutive year, increasing currency vulnerability," said the economist.

"We expect the RBI to remain on pause in FY27, balancing growth and inflation risks from the supply shock. To manage external pressures and currency dynamics, the RBI will likely rely on non-rate measures, including tighter ODI norms and steps to boost NRI deposits and FX inflows," she noted.

- IANS

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Reader Comments

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Priya S
"Growth to hinge on domestic demand" – that's the key line. We can't rely on exports when the world is in turmoil. Infrastructure capex is good, but what about creating jobs in manufacturing? Services exports alone won't sustain 7% growth for long. Need more policy focus on MSMEs and rural demand. 🤔
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Ananya R
Interesting timing – Morgan Stanley predicting rate pause while everyone expects cuts. My worry is the WPI pressure they mention. If wholesale inflation rises, retail prices will follow. The food inflation risk from weather is also real; El Niño predictions are worrying. Let's hope the monsoon is good this year. 🌾
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Karthik V
Good analysis, but I'm skeptical about "exceeding expectations." Every quarter we hear about resilience, but ground reality is different for small businesses. The currency vulnerability point is concerning – if rupee keeps falling, imported inflation will hit hard. RBI needs to be proactive, not just reactive. 📉
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Siddharth J
The "benign starting point" argument is valid. India's macro fundamentals are better than many peers. But prolonged high oil prices will test our fiscal discipline. The report's mention of "non-linear impacts" is serious – if households cut spending, it could spiral. Hope the government has contingency plans beyond ODI norms and NRI deposits.
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Michael C
Interesting perspective from the other side. India's growth story is compelling but these supply-side shocks are a global problem. The comparison with other emerging markets will be telling. If RBI manages to hold rates while maintaining growth, that would be quite an achievement. Let's see if the monsoon delivers

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