While India’s prospects of finalizing a trade agreement with the United States are improving, broader concerns surrounding global trade and growth remain, according to a recent report by Morgan Stanley. The report anticipates that a bilateral deal between India and the US could be concluded and implemented in the coming months, potentially boosting India’s access to the American market.
However, the report also underscores that elevated tariffs between the US and China continue to pose risks to global trade and economic expansion. “We assume that India and US will be able to conclude and implement a bilateral deal over the next few months. However, to the extent tariffs between US and China remain at elevated levels, global growth and trade are likely to take a hit,” the report stated.
Morgan Stanley has revised India’s GDP growth forecast for FY2026 downward by 40 basis points to 6.1%, citing the broader impact of global trade uncertainties. Despite the downgrade, the report points out that India’s export-driven vulnerability is lower compared to its Asian peers. Goods exports constitute around 12% of India’s GDP—one of the lowest among Asian economies. Exports to the US account for about 2.1% of GDP, with non-pharma and non-energy exports contributing just 1.7%.
Although India’s direct trade exposure to global tensions is limited, the report highlights potential second-order effects. Slower global growth could affect business sentiment and investment cycles, ultimately dampening domestic consumption and capacity utilization. With exports accounting for 21% of India’s GDP, any deceleration in global demand could hinder India’s capital expenditure (capex) momentum.
On the positive side, the recent drop in oil prices—driven by slowing global growth—is beneficial for India, which imports more than 80% of its crude oil requirements. Lower commodity prices could ease inflationary pressures and improve the country’s trade balance.
The report also flagged risks to capital inflows amid global uncertainty. “Such an environment of global uncertainty can impede capital flows, with both FII and FDI flows adversely affected,” it said.
Morgan Stanley projects that India’s economy will recover moderately in FY2027, with a revised growth forecast of 6.3%. The report concludes that a timely resolution of US-China trade tensions could restore global growth momentum and improve the economic outlook for countries like India.
