New Delhi, May 13: Morgan Stanley has projected that India’s real GDP growth will remain at 6.7% for the fiscal year 2027, with an expected rise to 7% in fiscal year 2028. The Reserve Bank of India (RBI) is anticipated to keep interest rates stable to support growth amid global uncertainties.
The report highlights that tensions in West Asia are likely to have the most significant impact in the June quarter, with growth potentially slowing to 6.5% due to high commodity prices and supply chain disruptions.
Upasana Chachra, Chief Economist at Morgan Stanley India, stated, “As supply-side constraints ease and commodity prices stabilize, we expect a gradual normalization of activity, aligning growth rates with trends by March 2027.”
Chachra added, “However, global conditions remain unstable, and the level of uncertainty is quite high. Persistently high oil prices could adversely affect growth.”
The report suggests that domestic demand will be crucial for growth amid external uncertainties. It notes, “While overall instability persists, prolonged disruptions in supply and high commodity prices may reduce stability. Policy support will remain essential to mitigate the impact on growth.”
Despite weak external conditions, activity indicators for April show strong domestic demand. The report indicates that ongoing conflicts in the Middle East and high oil prices may pressure growth, but “we expect outcomes to be better than previously anticipated.”
The economist emphasized the need to monitor second-round effects from weather and input availability, along with risks of food inflation. High oil prices could increase the current account deficit to 1.8% of GDP, while a decline in capital flows may lead to a balance of payments deficit for the third consecutive year, heightening currency sensitivity.
Chachra noted, “We expect the RBI to refrain from changing interest rates in FY27 to balance growth and inflation risks arising from sudden supply shocks. To manage external pressures and currency dynamics, the RBI will likely rely on measures beyond interest rates, including stricter rules on foreign exchange and initiatives to boost deposits from non-resident Indians and foreign currency inflows.”
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