New Delhi [India], June 5 : Morgan Stanley on Monday said India's GDP growth will track above 6 per cent in the next two financial years, supported by strength in domestic demand. It pegged growth for 2023-24 and 2024-25 at 6.2 per cent and 6.5 per cent, respectively.
"We expect a confluence of cyclical and structural tailwinds to drive growth momentum," Morgan Stanley said in a report titled 'India Economics Mid-Year Outlook'.
"As such, we expect broad-based improvement in consumption and capital formation and thus see GDP remaining robust."
As per the provisional estimates released by the National Statistical Office (NSO) recently, real GDP growth for 2022-23 stood at 7.2 per cent, higher than the 7 per cent projected.
Despite strong global headwinds and tighter domestic monetary policy tightening, various international agencies have forecasted India to be one of the fastest-growing economies in 2023-24, supported by robust growth in private consumption and sustained pick-up in private investment.
On monetary policy by the central bank RBI, it said they expect macro stability to improve and to pave the way for a shallow repo rate cut cycle from first quarter of 2024.
"We believe that monetary policy has pivoted and we thus expect rates to remain on hold in CY23 (2023) against the backdrop of easing inflation and benign current account deficit. We expect a shallow rate cut cycle (a cumulative 50bp) from 1Q24, with risks that rate cuts could start earlier as the visibility on inflation moderation improves," the report said.
Repo rates, the interest rate at which RBI lends to banks, are up 250 basis points from the lows of May 2022 and 135 basis points higher than the pre-pandemic rate of 5.15 per cent. In the last policy meeting in April, RBI monetary policy committee unanimously kept the repo rate unchanged at 6.50 per cent.
Barring the April pause, the RBI raised the repo rate by 250 basis points cumulatively to 6.5 per cent since May 2022 in the fight against inflation.
Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
The Morgan Stanley report also find mentions about inflation outlook.
It expects retail inflation to average in line with RBI's projections for 2023-24 at 5.2 per cent versus 6.7 per cent in 2022-23.
Retail inflation is projected to moderate to 5.2 per cent for 2023-24 in India as estimated by RBI in its April monetary policy meeting; with Q1 at 5.1 per cent; Q2 at 5.4 per cent; Q3 at 5.4 per cent; and Q4 at 5.2 per cent.
"The risk to the inflation outlook in the near term will be weather-related shocks affecting the food inflation trend," the report said.
Last week, Morgan Stanley in a separate report said India has gained positions in the world order in a short span of 10 years.
It cited a few reasons which propelled India's growth supply-side policy reforms, formalisation of the economy, Real Estate (Regulation and Development) Act, digitalizing social transfers, Insolvency and Bankruptcy Code, flexible inflation targeting, focus on FDI, among others.
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