India will be the world’s third-largest economy by 2028 as it becomes the world’s most sought-after consumer market and gains share in global output, driven by macro stability influenced policy and better infrastructure, Morgan Stanley said.
From a USD 3.5 trillion economy in 2023, the Indian economy is projected to expand to USD 4.7 trillion in 2026, which will make it the fourth largest in the world behind the US, China and Germany.
In 2028, India will overtake Germany as its economy will expand to USD 5.7 trillion.
According to Morgan Stanley, India was the 12th largest economy in the world in 1990, slipped to 13th position in 2000 before rising to 9th rank in 2020 and 5th in 2023.
India’s share in the world GDP is projected to rise from 3.5 per cent to 4.5 per cent in 2029.
It projects three scenarios for India’s growth Bear where the economy expands to USD 6.6 trillion by 2035 from USD 3.65 trillion in 2025, Base where it grows to USD 8.8 trillion and Bull where the size balloons to USD 10.3 trillion.
It saw GDP per capita rising from USD 2,514 in 2025 to USD 4,247 in the Bear scenario in 2035, USD 5,683 under the Base scenario and USD 6,706 under the Bull scenario.
“India is likely gaining share in global output in the coming decades driven by strong foundational factors, including robust population growth, a functioning democracy, macro stability influenced policy, better infrastructure, a rising entrepreneurial class and improving social outcomes,” it said in a report.
“The implication is that India will be the world’s most sought-after consumer market, it will undergo a major energy transition, credit to GDP will rise and manufacturing could gain share in GDP.” Talking of present times, Morgan Stanley said the growth is likely recovering. “High-frequency indicators were mixed in recent weeks but are distinctly better than a couple of months ago. We expect growth to recover after a 2H24 (second half of 2024) slowdown on fiscal and monetary policy support, with recovery in service exports.” It expected GDP at 6.3 per cent in the current fiscal year ending March 31 and 6.5 per cent in the next.
“Macro-stability should remain in the comfort range, providing flexibility to policymakers.” Going forward, consumption recovery is expected to get broad-based as the income tax cuts propel urban demand, to support the buoyant trend in rural consumption levels.
Within investments, it saw public and household capex driving growth, while private corporate capex recovered gradually. The strength in services exports bodes well for the labour market outlook, coupled with moderating inflation which is likely to improve purchasing power.
As such, domestic demand is expected to emerge as the key driver of growth, bolstered by policy support, both on the monetary and fiscal front, it said.
Headline CPI has cooled off from its near-term peak to track close to 4 per cent, driven by moderating food prices while core inflation continues to remain well-behaved. The outlook for headline inflation hinges on food prices,(46 per cent of the CPI basket), which is expected to soften in the coming months.
Morgan Stanley expected inflation will be 4.3 per cent year-on-year in FY2026-27, lower than 4.9 per cent in FY2025.
Within trade, the strength in service exports in part offsets the weak trend in goods exports due to tepid global demand. As such, the current account deficit is expected to remain benign, as it stays sub 1 per cent of GDP in F2025-27, indicating continued resilience in the external balance sheet.
On the monetary policy front, the RBI is easing across all its levers — rates, liquidity and regulations. It embarked on a rate easing cycle in the February policy and Morgan Stanley expected another 25 bps rate cut in the April policy.
On the fiscal side, the Budget aims at reinforcing growth recovery by spurring consumption (through income tax cuts) and spending mix in favour of capex; while at the same time keeping macro stability in check by maintaining fiscal prudence.
Stating that risks to growth stem from external factors, it said, “We closely monitor developments on trade and tariff policies by the US government, alongside the strength in the dollar, Fed’s reaction function and global growth and financial conditions. On the domestic side, we track fiscal profligacy at the state level and/or any change in policy mix that would weigh on macro stability”.
The most crucial cue will likely be global, including US policy and global growth rates.
“A global recession or a near recession will challenge our call and keep the Indian equities off highs in 2025,” it added.
