India GDP growth forecast at 6.7% in FY27, RBI to hold rates: Morgan Stanley
Synopsis
Morgan Stanley sees India's GDP growing 6.7% in FY27, with a trough of 6.5% in Q1 FY27 due to the West Asia energy shock. The RBI is expected to hold rates all fiscal year, leaning on non-rate tools — a telling signal that India's macro stability, while intact, faces real stress-testing ahead.
Key Takeaways
Morgan Stanley forecasts India's real GDP growth at 6.7% in FY27 and 7% in FY28 .
Growth is expected to trough at 6.5% YoY in the quarter ending June 2026 due to the West Asia energy shock.
The RBI is projected to remain on pause through FY27 , balancing growth and inflation risks.
Higher oil prices could widen India's current account deficit to 1.8% of GDP .
The balance of payments may remain in deficit for a third consecutive year , increasing currency vulnerability.
Morgan Stanley economists on Wednesday, 13 May 2025, projected India's real GDP growth at 6.7% in FY27 and 7% in FY28, even as geopolitical tensions and elevated commodity prices cloud the near-term outlook. The global investment bank added that Reserve Bank of India (RBI) policy measures would likely remain supportive to minimise damage to growth.
West Asia Shock and Near-Term Growth Trough
According to the Morgan Stanley report, the West Asia energy shock is most pronounced in the quarter ending June 2026, when growth is expected to trough at 6.5% year-on-year amid elevated commodity prices and lingering supply chain frictions. This represents the sharpest pressure point in the bank's baseline scenario.
Upasana Chachra, Chief India Economist at Morgan Stanley, said:
Point of View
A third consecutive year of BoP deficit, and currency depreciation risk together paint a picture of an economy whose resilience is being tested by external shocks it cannot control. The RBI's expected reliance on non-rate tools — tighter ODI norms, NRI deposit incentives — signals that conventional monetary policy has limited room. India's growth story remains intact, but the margin for error is narrowing.
NationPress
10 Aug 2026
Frequently Asked Questions
What is Morgan Stanley's GDP growth forecast for India in FY27?
Morgan Stanley projects India's real GDP growth at 6.7% in FY27 and 7% in FY28, according to a report released on 13 May 2025. The near-term outlook is tempered by geopolitical tensions and elevated commodity prices.
Why is India's growth expected to slow in mid-2026?
The West Asia energy shock is expected to be most pronounced in the quarter ending June 2026, pushing growth to a trough of 6.5% year-on-year. Elevated commodity prices and supply chain frictions are the primary drags.
Will the RBI cut interest rates in FY27?
Morgan Stanley expects the RBI to remain on pause throughout FY27, balancing growth and inflation risks stemming from the supply shock. The central bank is likely to rely on non-rate measures such as tighter ODI norms and steps to boost NRI deposits and FX inflows.
How could high oil prices affect India's economy?
Sustained high oil prices could widen India's current account deficit to 1.8% of GDP and keep the balance of payments in deficit for a third consecutive year, according to Morgan Stanley. This increases currency vulnerability and could erode household and corporate spending over time.
What factors could support India's growth despite external headwinds?
Urban demand, government capital expenditure on infrastructure and defence, and services exports are expected to provide offsets to external pressures. April activity indicators have shown resilience supported by strong domestic demand, according to the report.
