India to Regain Lost Ground in Emerging Markets This Year, Tax Cuts Boost Urban Demand

India is likely to gain its lost ground among emerging markets in 2025 according to a Morgan Stanley forecast, ANI reported. It also noted that macroeconomic stability is likely to remain within a comfortable range, providing more flexibility to policymakers.

Attributing to India's energy transition, rising credit-to-GDP ratio and expanding manufacturing sector, financial services giant said that the country is poised to become the world's most sought-after consumer market.

It also highlighted the country's rising share in global output driven by robust population growth, macroeconomic stability, functioning democracy, improved infrastructure, growing entrepreneurial class and improved social outcomes.

Morgan Stanley expects that India's gross domestic product (GDP) growth will stand at 6.3% in FY25 and 6.5% in FY26. The firm attributed this growth to fiscal and monetary policy support and recovery in service exports.

The report further indicated that the equity markets of India are currently undervalued. However, it is expected that the earning growth will accelerate as financials, consumer discretionary, industrials and technology sectors are likely to outperform.

It also anticipated a rate cut in April by the Reserve Bank of India, supporting economic growth. It also highlighted the government's efforts to boost consumption through income tax cuts and increasing capital expenditure while maintaining fiscal discipline.

Consumption recovery is expected to broaden as urban demand rises due to tax cuts, while rural consumption remains strong, it added.

Furthermore, investments from the public and household sectors are expected to play a significant role in economic expansion, while private corporate investments will gradually pick up.

India Among Best-Performing EMs

According to a Goldman Sachs report released earlier this year, India is projected to be one of the best-performing emerging markets in 2025.

An earning growth of around 18-20% was forecast by the global investment bank annually in the next 4-5 years. It said that it will be primarily driven by an emerging private capex cycle, corporate balance sheet re-leveraging and a structural rise in discretionary consumption.

 "Our economists expect India's economy to grow at an average of 6.5 per cent between 2025 and 2030," said that report.

An emerging market economy is a country that's growing and starting to do more business with the world.