Morgan Stanley cuts India FY27 GDP forecast by 30bps to 6.2%

If crude spikes to $150/bbl for a quarter, we see FY27 (GDP) growth at around 5.7 per cent, CPI inflation breaching 6 per cent and the CAD widening to around 3 per cent of GDP, Morgan Stanley said.

Morgan Stanley has cut its real GDP (gross domestic product) forecast for India by 30 basis points (bps) to 6.2 per cent in fiscal 2026-27 (FY27) from 6.5 per cent earlier, given the ongoing conflict in West Asia.

 

It expects crude oil prices to average $95 per barrel (bbl) in FY27 with gas availability as an additional constraint.

 

Elevated prices and curtailed industrial supply are raising input costs, analysts at Morgan Stanley said, forcing selective production cuts and adding to imported inflation amid rupee weakness. 

 

 

"Against this backdrop, we cut our FY27 real GDP forecast by 30bp to 6.2 per cent (from 6.5 per cent), after previously tracking risks to the upside (real GDP 7.4 per cent in QE Mar-26 and F2027 anticipated ~7 per cent). We expect growth to trough at 5.9 per cent YoY in quarter ending June 2026 as industrial activity softens, margins compress and external financing tightens, before gradually normalising as supply shocks fade and policy support gains traction," wrote Upasana Chachra, Chief India Economist at Morgan Stanley in a recent coauthored note with Bani Gambhir and Shreya Singh.

 

Oil prices hold key

 

The key to these forecasts holding true in FY27, however, remains crude oil prices. If (Brent crude) oil spikes to $150/bbl for a quarter, the hit to growth and macro stability would be non-linear.

 

“In this case, we see FY27 (GDP) growth at around 5.7 per cent, CPI inflation breaching 6 per cent and the current account deficit widening to around 3 per cent of GDP,” Morgan Stanley said. 

 

 

India is traditionally a net commodity importer, with oil accounting for nearly 60% of commodity imports (as of 2025). Oil remains a key source of energy for India, with its share at 80 per cent in India's overall energy consumption and 85% being met through imports. 

 

To the extent that the weight of oil in the overall commodity import basket is high, volatility in oil prices makes India vulnerable, which is most instrumental for its implications for macroeconomic indices.

 

Meanwhile, Morgan Stanley's global commodity strategist, Martijn Rats, expects the effective closure of Hormuz to last through end-April, with only gradual recovery in flows thereafter creating a "physical air pocket". 

 

Per his estimates, Brent prices are likely to peak at $110/bbl in 2Q26 and then moderate gradually, averaging $95/bbl in FY27 versus $65/bbl earlier.

 

CPI inflation

 

Higher production costs, currency weakness and firmer food/core goods should lift average CPI inflation to 5.1 per cent YoY in FY27, Morgan Stanley said. 

 

"Risks are skewed up, especially if crude stays above $110/bbl – potentially forcing retail fuel price hikes and potentially raising second round inflationary impact," the analysts wrote. 

 

Externally, higher oil prices could widen the current account deficit by around 150bp to nearly 2.5 per cent of GDP in FY27 (vs. ~1 per cent previously), Morgan Stanley said. 

 

“With capital inflows lagging financing needs in recent years, we expect the balance of payments to remain in deficit for a third year, increasing vulnerability to rupee pressure,” the analysts added.