India maintains economic momentum amid elections: Morgan Stanley

India continues to uphold its position as the fastest-growing economy, bolstered by robust domestic fundamentals and macro stability, according to a recent report by Morgan Stanley. The report highlights the resilience of the Indian economy, citing factors such as strong domestic consumption, stable credit growth, and a favorable demographic dividend.

In March, India witnessed significant milestones in its economic indicators. The Manufacturing Purchasing Managers' Index (PMI) surged to a 16-year high, signalling a robust expansion in the manufacturing sector. Concurrently, core Consumer Price Index (CPI) reached an all-time low, reflecting well-contained inflationary pressures. These positive developments have led Morgan Stanley to revise its projections, no longer expecting the Reserve Bank of India (RBI) to enact further rate cuts during this cycle.

Morgan Stanley anticipates broad-based growth in the coming fiscal year, with expectations of narrowing gaps between rural-urban consumption patterns and private-public capital expenditure. The forecast suggests a growth rate of 6.8 per cent for the calendar year 2024, followed by a slightly moderated growth of 6.5 per cent in 2025. Private capital expenditure is exhibiting signs of recovery, as indicated by the Morgan Stanley Capex Indicator reaching an all-time high in the fourth quarter of 2023.

The report also discusses the ongoing Indian elections, held in multiple phases from April to June, with vote counting scheduled for June 4. Despite the electoral process, economic indicators remain strong, with headline CPI moderating to 4.9 per cent in March and core CPI hitting a record low of 3.3 per cent. Morgan Stanley predicts range-bound inflation of 4-5 per cent for the years 2024 and 2025, with food inflation potentially introducing volatility to headline CPI.

The RBI, in its recent policy meeting in April, opted to maintain the status quo on policy rates for the seventh consecutive time, keeping the repo rate unchanged at 6.5 per cent. The central bank emphasised its commitment to aligning with the 4 per cent inflation target over the medium term and preserving financial stability through nimble monetary operations.

Looking ahead, the RBI aims to navigate potential risks, including fluctuations in food prices and changes in global financial conditions. Despite these challenges, Morgan Stanley remains optimistic about India's economic outlook, underpinned by prudent policies and favorable macroeconomic conditions.