India to be third largest economy by 2028: Morgan Stanley

From a $3.5 trillion economy in 2023, the Indian economy is projected to expand to $4.7 trillion in 2026, which will make it the fourth largest in the world behind the US, China and Germany.

Friday March 14, 2025 , 4 min Read

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 has said.

From a $3.5 trillion economy in 2023, the Indian economy is projected to expand to $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 $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%t to 4.5% in 2029.

It projects three scenarios for India's growth: Bear - where the economy expands to $6.6 trillion by 2035 from $3.65 trillion in 2025, Base - where it grows to $8.8 trillion, and Bull - where the size balloons to $10.3 trillion.

It saw GDP per capita rising from $2,514 in 2025 to $4,247 in the Bear scenario in 2035, $5,683 under the Base scenario and $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% in the current fiscal year ending March 31 and 6.5% 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%, driven by moderating food prices while core inflation continues to remain well-behaved. The outlook for headline inflation hinges on food prices,(46% of the CPI basket), which is expected to soften in the coming months.

Morgan Stanley expected inflation will be 4.3% year-on-year in FY2026-27, lower than 4.9% 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% 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.