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Informist, Monday, Nov. 17, 2025

 

NEW DELHI – A prolonged punitive tariff by the US on imports from India beyond the March 2026 timeline, or further worsening of global geopolitics, may lead to some repercussions on India's growth, Morgan Stanley said in a report. However, it expects both monetary and fiscal policies to help offset the adverse impact of exacerbated external headwinds.

 

"The monetary policy has ammunition in its artillery to ease rates further and inject more durable liquidity, against the backdrop of a benign trend in inflation. On the fiscal policy front, the government could aim to pause its fiscal consolidation process and curtail its revenue spending. Thus, in our view, policy support can be stepped up to mitigate the downside risks, if any," the report said.

 

Morgan Stanley, however, believes that the ongoing India-US trade negotiations will culminate into a trade deal with a meaningfully lower tariff rate by March 2026. "In fact, the recent newsflow on President (Donald) Trump suggesting a trade deal between India and the US soon further underscores abating global headwinds for India's external demands," it said.

 

The US has slapped an additional 25% punitive tariff on Indian goods, on top of a 25% reciprocal tariff, citing India's continued purchases of Russian crude oil. Trade negotiations between both the countries hit a roadblock after India resisted opening its vast agricultural and dairy sectors. The brokerage said, on the fiscal policy front, it expects the government to maintain its fiscal pragmatism, with an emphasis on improving its spending mix in favour of capital creation and improving tax buoyancy.

 

Under the fiscal roadmap, the fiscal deficit was to be brought below 4.5% of GDP by 2025-26 (Apr-Mar) from a record high of 9.2% in FY21. The fiscal deficit was 4.8% of GDP in FY25. The government has set a fiscal deficit target of 4.4% for the current financial year. FY27 onwards, the government will endeavour to keep the fiscal deficit each year such that the Centre's debt will be on a declining path as a percentage of the GDP. The government will aim to lower its debt to 49-51% of GDP by March 2031. The central government's debt is seen at 57.1% of GDP in FY25 and 56.1% in FY26. "Thus, the government remains steadfast in ensuring sustainable debt management, as it transitions from deficit to debt as its key fiscal metric, in line with global best practices," Morgan Stanley said in its report.

 

The brokerage said the recent trend in consumption growth reflects a weaker trend in urban demand, while rural demand has been healthy. Tighter monetary policy, a weaker job market, and slower wage growth have weighed on urban demand, it said. It anticipates a continued recovery in urban demand and support from rural demand in the next 12 months, driven by factors including monetary policy easing, direct and indirect tax reforms, improving real wages and an upturn in employment.

 

Morgan Stanley said India's nominal growth has been on a weakening trend in the last five quarters, primarily due to softening in the deflator. "In our view, the nominal growth is expected to be at 10.6% on-year in 2026-27, vs. 8% in FY26 and 9.7% in FY25. Moreover, the broadening of domestic demand conditions and a stabilising global geopolitical and macro backdrop are likely to aid in improving the trend and momentum in real growth rates as well," it said.  End

 

Reported by Sagar Sen

Edited by Ashish Shirke

 

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