New Delhi, March 11 Trade tensions will likely remain a drag on Asia’s growth but India is still the best placed in the region against this backdrop – low goods exports, strong services exports and policy support for domestic demand, a Morgan Stanley report said on Tuesday.
The reversal of the unwarranted double tightening of fiscal and monetary policies will help drive the recovery in India.
“In fact, monetary easing is hitting full throttle across three fronts – rates, liquidity injection and regulatory easing. Trade tensions will weigh on the region’s trade outlook, but India is less exposed on account of its low goods exports to GDP ratio,” the report mentioned.
Meanwhile, the policy support which will turn around its domestic demand outlook will allow India to outperform.
“We believe the recovery will continue to firm over the coming months. Green shoots are already emerging in recent data. Our preferred high frequency metric – goods and services tax (GST) revenue – has accelerated to an average of 10.7 per cent in January-February 2025 compared with an average of 8.9 per cent in Q3 2024 and 8.3 per cent in Q4 24,” the Morgan Stanley report noted.
If we adjust for the fact that February last year had an extra day (leap year), GST revenue grew by close to 12.6 per cent in Jan-Feb 2025.
Morgan Stanley believes the recovery will be driven by sustained momentum in government capex spending, triple easing on monetary policy, moderation in food inflation lifting real household incomes and and improvement in services exports.
“We expect policy easing across policy rates, liquidity and regulatory front to support the growth recovery. Most of these measures have been taken up only in the past six weeks or so and so there will still be some time before it fully filters through in terms of supporting the recovery,” the report stressed.
The private consumption has staged some recovery in Q4 2024, with real private consumption growth accelerating to 6.9 per cent. Fast-moving consumer goods (FMCG) volume growth has also picked up to 7.1 per cent in the quarter, led by a stronger recovery in rural volume.
Meanwhile, to the extent that RBI has begun easing regulatory tightening on non-bank financial companies (NBFCs) – as evident in the recent rollback of the 25ppt increase in risk weights for bank credit to NBFCs – “we believe this would help improve liquidity accessibility for NBFC lenders and end borrowers.”
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