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Morgan Stanley says the Indian economy is projected to expand to $5.7 trillion by 2028 to overtake Germany as the third-largest economy in the world as its share in global production rises driven by macro stability influenced policy and better infrastructure.
Morgan Stanley expects India’s GDP to grow at 6.3 per cent in the current financial year ending March 31 (FY25) and 6.5 per cent in the next.
Even as the global economy is facing uncertainties, Morgan Stanley in its latest report said India is on its way to become the world’s third-largest economy by 2028 as its share in global production rises driven by macro stability influenced policy and better infrastructure. It will surpass Germany GDP to become the third largest economy.
The Indian economy is projected to expand to $4.7 trillion by 2026, which will make it the fourth largest in the world behind the US, China and Germany. In 2028, India will overtake Germany as its economy will expand to $5.7 trillion.
In 2023, the Indian economy was at $3.5 trillion.
According to Morgan Stanley, India was the 12th largest economy in the world in 1990, slipped to 13th position in 2000 before rising to 9th rank in 2020 and 5th in 2023.
India’s share in the world GDP is projected to rise from 3.5 per cent to 4.5 per cent in 2029.
Three Scenarios: ‘Bear’, ‘Base’, and ‘Bull’
It projects three scenarios for India’s growth – Bear – where the economy expands to $6.6 trillion by 2035 from $3.65 trillion in 2025, Base – where it grows to $8.8 trillion and Bull – where the size balloons to $10.3 trillion.
It saw GDP per capita rising from $2,514 in 2025 to $4,247 in the Bear scenario in 2035, $5,683 under the Base scenario and $6,706 under the Bull scenario.
‘Most Sought-After Consumer Market’
Morgan Stanley in the report said, “India is likely gaining share in global output in the coming decades driven by strong foundational factors, including robust population growth, a functioning democracy, macro stability influenced policy, better infrastructure, a rising entrepreneurial class and improving social outcomes.”
“The implication is that India will be the world’s most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise and manufacturing could gain share in GDP.”
Talking of present times, Morgan Stanley said the growth is likely recovering. “High-frequency indicators were mixed in recent weeks but are distinctly better than a couple of months ago. We expect growth to recover after a 2H24 (second half of 2024) slowdown on fiscal and monetary policy support, with recovery in service exports.”
It expects India’s GDP to grow at 6.3 per cent in the current financial year ending March 31 (FY2024-25) and 6.5 per cent in the next.
“Macro-stability should remain in the comfort range, providing flexibility to policymakers.” Going forward, consumption recovery is expected to get broad-based as the income tax cuts propel urban demand, to support the buoyant trend in rural consumption levels.
‘Public & Household Capex Driving Growth’
Within investments, it saw public and household capex driving growth, while private corporate capex recovered gradually. The strength in services exports bodes well for the labour market outlook, coupled with moderating inflation which is likely to improve purchasing power.
As such, domestic demand is expected to emerge as the key driver of growth, bolstered by policy support, both on the monetary and fiscal front, it said.
‘Inflation Likely To Remain At 4.3% In FY27’
Headline CPI has cooled off from its near-term peak to track close to 4 per cent, driven by moderating food prices while core inflation continues to remain well-behaved. The outlook for headline inflation hinges on food prices,(46 per cent of the CPI basket), which is expected to soften in the coming months.
Morgan Stanley expected inflation will be 4.3 per cent year-on-year in FY2026-27, lower than 4.9 per cent in FY2025.
‘Current Account Deficit Expected To Remain Benign’
Within trade, the strength in service exports in part offsets the weak trend in goods exports due to tepid global demand. As such, the current account deficit is expected to remain benign, as it stays sub 1 per cent of GDP in F2025-27, indicating continued resilience in the external balance sheet.
‘Another Rate Cut Likely In April’
On the monetary policy front, the RBI is easing across all its levers — rates, liquidity and regulations. It embarked on a rate easing cycle in the February policy and Morgan Stanley expected another 25 bps rate cut in the April policy.
‘Spurring Consumption, Spending In Favour Of Capex’
On the fiscal side, the Budget aims at reinforcing growth recovery by spurring consumption (through income tax cuts) and spending mix in favour of capex; while at the same time keeping macro stability in check by maintaining fiscal prudence.
Tariff War, Global Trade Risks, US Fed: ‘Global Risks Remain’
Stating that risks to growth stem from external factors, it said, “We closely monitor developments on trade and tariff policies by the US government, alongside the strength in the dollar, Fed’s reaction function and global growth and financial conditions. On the domestic side, we track fiscal profligacy at the state level and/or any change in policy mix that would weigh on macro stability”.
The most crucial cue will likely be global, including US policy and global growth rates.
“A global recession or a near recession will challenge our call and keep the Indian equities off highs in 2025,” it added.
(With PTI Inputs)
