October 1, 2025
NEW DELHI – Morgan Stanley said India’s economy needs to expand at an extraordinary 12.2% annually to solve its underemployment crisis. It underscored the risk that millions of young Indians may remain locked out of productive work, fueling social strains at home.
India’s economy grew 7.8% in the June quarter, outpacing expectations, but that pace still falls far short of what’s needed to absorb the 84 million people set to join the workforce over the next decade, Morgan Stanley said. The report also pointed to poverty levels as a lingering drag on household consumption in the country.
Without stronger industrial and export growth, accelerated infrastructure roll out, and sweeping reforms to upgrade skills and improve the business climate, India risks falling into a jobs trap, Morgan Stanley warned.
That would not only slow its ambition of becoming the world’s next growth engine, but also intensify outward migration pressures even as H-1B visas are becoming costlier, it added.
The Indian economy is expected to grow at 6.5% in the current financial year despite a strong 7.8% growth in the first quarter, Asian Development Bank (ADB) said. The impact of US tariffs on Indian exports will reduce prospects, particularly in the second half, it added.
The Asian Development Outlook (ADO) September 2025 of the ADB highlighted that while GDP grew strongly in the first quarter (Q1) of FY26 at 7.8% on improved consumption and government spending, additional US tariffs on Indian exports will reduce growth, particularly in the second half of FY26 and in FY27, though resilient domestic demand and service exports will cushion the impact.
The reduction in exports will impact India’s GDP in both FY26 and FY27 as the tariffs are implemented. As a result, net exports will subtract from growth more than previously forecast in April, it said.
The impact on GDP will be limited by a relatively low share of exports in GDP, increased exports to other countries, continued robust services exports that are not directly affected by tariffs, and a boost to domestic demand from fiscal and monetary policy.
ADO also anticipates that the fiscal deficit is likely to be higher than the budget estimate of 4.4% of GDP on account of reduced tax revenue growth partly because of GST cuts, which were not included in the original budget. With spending levels are assumed to be maintained, the deficit is projected to rise.