Supportive Fiscal and Monetary Policies to Propel India's Growth: Morgan Stanley
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Synopsis
The Morgan Stanley report highlights that a supportive fiscal and easing monetary policy will contribute to India's growth momentum. The report predicts a growth rate of 6.3% for FY25, driven by private and government consumption amid a recovering job market.
Key Takeaways
- Supportive fiscal policy to enhance capex and consumption.
- Easing monetary policy across rates, liquidity, and regulations.
- Private consumption grew by 6.9% YoY.
- Government consumption reached a five-quarter high of 8.3% YoY.
- GDP growth expected at 6.3% for FY25.
New Delhi, March 1 (NationPress) The combination of a supportive fiscal policy that enhances both capital expenditure (capex) and consumption, along with accommodative monetary policy across all its facets—rates, liquidity, and regulations—and strong services exports, is expected to positively influence the job market outlook, thus aiding India's growth momentum, as highlighted in a report by Morgan Stanley.
The GDP figures for the December quarter reaffirm the perspective that growth is in a recovery phase, having reached its lowest point in the September 2024 quarter, according to the report.
High-frequency data for January and February indicates a mixed pattern, showing gradual signs of recovery.
While the implied growth for the March quarter stands at 7.6 percent (based on preliminary estimates), we anticipate that actual growth will likely be lower at 6.7 percent.
“Consequently, we project a growth rate of 6.3 percent for FY25,” the report states.
The report monitors trends in government spending related to both revenue and capital expenditures, domestic liquidity, financial conditions, and the external environment concerning trade, tariff changes, and the US Federal Reserve's policy.
For Q3 FY25, internal data suggests that the increase in GDP was primarily driven by robust private consumption (bolstered by a thriving rural economy) and government spending (an increase in government expenditure).
Private consumption rose by 6.9 percent year-on-year, while government consumption reached a five-quarter high of 8.3 percent year-on-year.
On the other hand, gross capital formation remained relatively stable compared to the previous quarter at 5.7 percent year-on-year (in comparison to 5.8 percent in Q3 FY24).
“Net exports positively contributed to GDP, as export growth exceeded import growth. For 2025, the second advance estimates slightly increase growth expectations to 6.5 percent year-on-year compared to the first advance estimates of 6.4 percent and Morgan Stanley's estimate of 6.3 percent,” the report elaborates.
Within the industrial sector, manufacturing activity and electricity, gas, and consumption experienced growth in the December quarter, while construction activity showed a decline from the last quarter.
In the services sector, growth was primarily driven by an upturn in trade, hotel, transport, and communication services, aided by the holiday season, while other sectors remained stable compared to the previous quarter.
