For long India has been a laggard when it came to expert manufactured goods but very strong in experting services to the world. With the us turning on the heat on its Major Trading Partners from which it importants manufactured Goods Worth Billions, India's's low good goods expen Financial Major Morgan Stanley said on tuesday.
“Trade tensions will likely remain a drag on asia's growth outlook. We highlight the reasons why India is still the best place in the region against this backdrop – low good goods expenses, Strong Services Exports and Policy Support for Domestic Demand, ”A Repery Stanny Stanny Chief Asia Economist Chetan Aya and Three of His Team Members said.
“Investors Remain very skeptical about India's growth narrative. But we think the reverse of the unwarranted double tightening of fiscal and monetary policies will help drive the recoverry, “The report noted.
“(Monetary) Esing is Hitting full throttle across three fronts – rates, liquidity injection and regulatory Easing. Trade tensions will weigh on the region's trade outlook, but India is less expected on account of its low Goods Exports to GDP Ratio. (At the same time), the policy support which will turn Around its domestic demand outlook will allow India to outperform. “
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The Morgan Stanley Report Asserts that India Demonstrates Resilience in Economic Performance, Particularly during during Global Trade Deception, Due to two to two significant factors.
- Firstly, the nation mains the region's lowest ratio of goods expenses to gdp.
- Secondly, Its services experts exhibit Robust DefenseSive Characteristics Whilst Consistently Expanding Market Share, Providing a counterbalance to potential trade impacts.
Why did the Indian economy slow down?
Looking back, it is evident that Economic Slowdown Resulted from an unanticipated Concurrent Restriction of Both Fiscal and Monetary Measures. In the context of India, despite stable macroeconomic indicators showing no warning signs, the implementation of stringent fiscal and monetary contracts LED to Diminished Growth Rates.
Government Spending-Which Accounts for 28% of GDP-Contracted by -6% Y at the Trough in Jul-24 on a Three-Month Trailing Basis AMID Elections, And then Recovered at a slower-the-toker-expected packed Post-elections, especially on the capital expertly front (which averaged -12% in May-Nov-24 but have recovered to 37% y 3mma in jan-25). Monetary policy was tightened on all three fronts of policy rates, liquidity and regulatory measures, say the report.
What's the Road to Economic Recovery?
Recovery will continue to firm over the coming months. Green Shoots are alredy emerging in recent data. For example, goods and services tax (GST) Revenue-Has Accelerated to an average of 10.7% in Jan-Feb 2025.
GST Revenue is Reachalereting
According to the morning stanley report, recovery will be driven by:
1) Sustained Momentum in Government Capex Spending: Central Government Capital Expenditure Growth has accelerated markedly in December and January. In the F2026 Budget Plan, Capital Expenditure is Estimated to Grow at 10.1%Y, Indicating Continued Support for Public Capex.
Recovery in Government Capex Spending Underway
2) Triple Easing on Monetary Policy: Morgan Stanley Expects Policy Easing Across Policy Rates, Liquidity and Regulatory Front to Support the Growth Recovery. It expects a second 25bps rate cut at the april meeting with risks of more rates if the growth recoverry plays out more slowly than it expects. RBI is Expected to Continue to Manage Liquidity Conditions Proactively, Especially in the context of the seasonal Rise in Liquidity deficit towards Financial Year End (MARCH).
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To the expert that RBI has been done regulatory tightening Stanley Believes This would help improve liquidity accessibility for NBFC lenders and end borrows.
3) Moderation in food inflation lifting real household income: With Food Inflation Having Since Moderated from its October peak of 10.9%y to 6%y to 6%y in January, headline cpi has taken a step down to a five-month low of 4.3%y. With the trend in high frequency food prices indicating Continued %Y Moderation in February and March Month-TO-Date, Morgan Stanley Expects the Disinflection Trend at the headline CPI LEVEL to content.
Food Inflation Trending Downwards
4) Improvement in services expenses: Morgan Stanley Believes India's services expenses should remain relatively healthy. DURING Times when the Global Trade Environment Turns Down, Goods Exports May Contract but services generally do not. The strength in services expenses should also reflect in a pickup in urban jobs growth and hence private consumption with a lag.
Can India Avoid Tariffs, Reach a Trade Deal With The Us?
India Faces Significant Exposure to Potential Tariff Escalation Within Asia, Particularly Concerning ReciproCal Tarifs, Due to Its High Import Tarif Rates, SUBSTANTIAL NOBTARFF JABARIFF JATARIFF RATES, and Considerable trade surplus with the us. The precise impact remain uncertain, as the US Administration has not provided detailed detailed detailed Clarification Regarding the implementation of reciprocal tariffs, says the morgan stanley report.
India More Expeded to Direct Tariff Risks
India's vulnerability extends to its pharmaceutical expenses, which constitute 2.8% of Total Exports and 0.3% of GDP, as these products have been identified by presiding by presiding by presiding Targets for tariff implementation.
Whilst a Trade Agreement Between India and the US Achievable By Fall 2025, The Negotiation process is likely to be company and time-consuming due to variaous bilateral trade complications.
While India is expected to Direct Tariff Risks, We have Consistent highlighted that the bigger effect on growth from tarifs likely comes via the indirect transmission channel of vaaker corporate Confidence from Heightened Policy Uncertain and the Spilloverrs to Capex and Trade Cycle. From this percective, India's low Goods Trade Orientation and Ability to Generate Domestic Demand Offset Mean Among the Least Expeded Economies Within The Region from An Indirect Effect, ” Report.
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