Tariffs, global growth slowdown, geopolitics pose risks to India’s outlook; GST cut to boost demand: Upasana Chachra, Morgan Stanley

Industrial growth hit a four-month high in July, but the trajectory for the coming months will depend on export performance and the impact of higher tariffs, according to Upasana Chachra, Chief India Economist at Morgan Stanley.

The Index of Industrial Production (IIP) rose 3.5% in July, aided partly by frontloaded exports. “Post-August, we will see how exports play out in the face of higher tariffs. That will influence IIP numbers. But overall, India’s macros remain solid, with June-quarter GDP likely to come in above 6.5%,” Chachra told ET Now.

She cautioned that global risks remain the key threat. “External factors—tariffs, global growth slowdown, and geopolitics—pose risks to India’s outlook. Domestically, the risks are limited, with policy responses likely to cushion growth,” Chachra added.

GST cut to act as dual booster for growth and inflation

On inflation, the Morgan Stanley economist noted that benign food and core trends support the case for further monetary easing. “CPI inflation is well-behaved. With fiscal support also likely, we can be cautiously optimistic for the second half of the year,” she said.

Chachra expects the proposed GST rate rationalisation to act as a dual booster for growth and inflation. “The stimulus could be around 0.5% of GDP. With a tax multiplier above one, growth could see an uplift of 50–70 basis points, while inflation may ease by 40–50 basis points,” she explained.

On India’s debt levels, which have risen to 158% of GDP, Chachra said the situation remains manageable. “Most of the increase is on the public sector side post-pandemic. As growth sustains at 6–6.5%, debt sustainability is not a concern. Private sector leverage may rise modestly as investment picks up, but overall macro balance sheets are in good shape.”