In its 2024 Economic Outlook, Morgan Stanley Research articulated its anticipation of India’s economic growth at approximately 6.5% for both FY2024 and FY2025, attributing this optimism to robust domestic fundamentals. The research arm of the investment bank underscored the significance of domestic demand buoyed by the resilience of corporate and financial sector balance sheets, coupled with the continued impact of policy reform measures. This forecast aligns with a global economic slowdown, emphasizing India’s capacity for growth amid international challenges.
Morgan Stanley’s projection arrives amidst heightened tensions in Israel, posing potential ramifications for oil prices. Acknowledging the intricate interplay between high oil prices, inflation, increased import bills, and their subsequent impact on fiscal deficit and trade balance challenges, the report examines the potential implications for the Indian economy.
The investment bank’s insights align with Moody’s Investor Services’ retention of India’s economic growth at 6.7% for 2023, reflecting the nation’s commendable resilience amidst a global deceleration, primarily driven by steadfast domestic demand. Furthermore, the International Monetary Fund (IMF) revised its growth projection for India in 2023-24 to 6.3%, an upward adjustment from its previous estimate in July, citing stronger-than-expected consumption during Q1.
On the monetary policy front, Morgan Stanley anticipates the Reserve Bank of India (RBI) to maintain interest rates unchanged until the first half of 2024. However, the report outlines a prospective shallow rate cut cycle from June 2024, contingent on sustained inflation moderation. The projected two rate cuts of 25 basis points each are envisioned to maintain real policy rates at an average of approximately 100 basis points throughout 2024.
The potential risks to this outlook are identified in external factors such as higher commodity prices, particularly oil, contributing to inflationary pressures, and global financial conditions impacting the currency, potentially unsettling macro stability. As the RBI keeps a vigilant eye on liquidity management amid external uncertainties, the report emphasizes the central bank’s commitment to maintaining positive real rates for the domestic economy.
Addressing potential political outcomes, the report highlights that the upcoming general elections in May 2024 could introduce uncertainties with implications for both growth and macro stability. The positive scenario envisions a strong political mandate supporting reform measures alongside improved external demand, fostering accelerated growth. Conversely, a downside scenario could unfold with delayed Capex cycles resulting from weakened business confidence due to unexpected political outcomes or external environmental challenges.
In addition to projecting economic growth, Morgan Stanley foresees an acceleration in private consumption growth, anticipating a convergence between rural and urban demand, as well as between goods and services. Moreover, the report envisions a sustained upturn in private capital expenditure, creating a virtuous cycle of growth, with stabilized export trends that do not hinder overall economic expansion.
The synthesis of these economic analyses emphasizes the pivotal role of a well-calibrated policy response, ensuring a delicate balance for India’s economic trajectory characterized by healthy growth, moderated inflation, and a manageable current account deficit.
