Morgan Stanley, a global brokerage firm, has raised its GDP growth prediction for the fiscal year 2024-25 (FY25) to 6.8%, up from the previous estimate of 6.5 percent. The company also updated its growth target for the current fiscal year (FY24) to 7.9%.

Morgan Stanley anticipates India's GDP growth to remain strong, with a growth rate of around 7% in the fourth quarter of FY24 (ending March 2024). This growth momentum is likely to spread throughout FY25, with rural-urban consumption and private-public capital expenditure gaps narrowing.

Furthermore, the firm anticipates a favorable inflation trajectory, with recent data showing a moderated headline inflation. Food inflation is likely to soften, followed by considerable moderation in core inflation as a result of supply chain softening and low pricing pressures. The business also anticipates a shallow monetary policy easing cycle, underpinned by continued growth in industrial and capital spending activity.

These changes reflect a bullish view of India's economic trajectory, with Morgan Stanley citing the country's strength and stability as distinguishing characteristics of the present cycle.

Looking ahead, Morgan Stanley expects headline inflation to average 4.5 percent in FY25, down from 5.4 percent in FY24, but core inflation will stay low at 4.1 percent. The firm predicts increased supply chain normalization and lower commodity price pressures, which will add to the disinflationary trend.

Despite the favorable economic forecast, Morgan Stanley cautioned about potential dangers from global and domestic concerns. Slower-than-expected global growth, rising commodity prices, and tighter global financial conditions all pose dangers to India's economy and macroeconomic stability. Domestically, events such as central elections and shifts in the policy mix require special attention.