Domestic demand to power India’s growth as global uncertainty looms: Morgan Stanley
Brokerage projects a sustained ‘Goldilocks’ phase with GDP growth of 6.8% in FY26, driven by stronger consumption, rising incomes, and a widening investment cycle.
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India’s economic expansion will continue to be anchored by domestic demand even as global conditions remain volatile, Morgan Stanley said in its 2026 India Economics Outlook. The firm projects a “continued Goldilocks environment” for Asia’s third-largest economy, with real GDP expected to grow 6.8% in FY26 and 6.5% across FY27–28.
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The momentum, it noted, will come from rising household consumption, improving urban sentiment and a broadening investment cycle, as per an ANI report.
The research note highlights that domestic drivers are strengthening even as external demand remains uncertain. A shift in both monetary and fiscal policy is helping revive urban consumption, which had previously softened due to high real interest rates and muted hiring trends.
Morgan Stanley points to the transmission of 100 basis points of rate cuts in 2025 and recent tax changes, including income tax cuts worth ₹1 trillion and GST rationalisation , as key factors lifting disposable incomes.
Rural demand is also holding strong, supported by record farm output, favourable rainfall patterns and rising real wages. The report notes that real rural wages have grown 3.1% so far in calendar year 2025, compared with 1% growth in 2024.
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India’s post-pandemic capital expenditure cycle, which began with public and household-led investments, is now widening as private sector spending starts to gain momentum. Capacity utilisation has remained above its long-term average for over a year, and new private investments are building up across sectors such as clean energy, data centres, semiconductors, electronics, EVs, industrial real estate and healthcare.
An RBI study cited in the report estimates private project financing will rise to ₹2.7 trillion in FY26, up from ₹2.2 trillion the previous year.
