Moody’s Cuts India Growth Forecast To 6% Amid West Asia Conflict Risks
Moody’s Ratings has lowered India’s GDP growth forecast for FY27 to 6%, down from its earlier estimate of 6.8%, citing the economic impact of the ongoing West Asia conflict on energy supplies, inflation, and overall growth momentum.
In its latest credit opinion report, Moody’s warned that prolonged disruptions particularly in LPG shipments could lead to near-term household shortages, higher fuel and transportation costs, and spillovers into food inflation due to India’s dependence on imported fertilisers. The region accounts for nearly 55% of India’s crude oil imports and over 90% of its LPG supplies, making the economy highly vulnerable to supply shocks.
“While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside,” Moody’s said, projecting inflation to average 4.8% in FY27, compared with 2.4% in FY26. The agency added that policy rates are likely to remain steady or be raised gradually depending on how long geopolitical tensions persist and how strongly they feed into food and fuel prices.
Moody’s expects growth moderation to be driven by weaker private consumption, softer industrial activity, and slowing investment momentum amid elevated input costs. Rising prices of oil, gas and fertilisers are also expected to increase subsidy burdens and strain government finances, even as revenue collections may weaken due to subdued consumption and corporate profitability.
The agency flagged that higher expenditure commitments and weaker revenue mobilisation could constrain fiscal space and slow the pace of fiscal consolidation unless offset by corrective measures. However, it expects gradual debt consolidation, in line with the government’s target of reducing central debt to around 50% of GDP by 2030-31.
Other agencies have also revised growth expectations. The Organisation for Economic Co-operation and Development has projected India’s GDP growth at 6.1% for the current fiscal, while ICRA expects growth at 6.5%, citing elevated energy prices and supply concerns. An analysis by EY indicated that prolonged conflict could shave around 1 percentage point off growth and push inflation up by about 1.5 percentage points.
Despite these headwinds, India’s economic fundamentals remain relatively strong. GDP growth stood at 7.5% in calendar year 2025, the highest among G20 economies, supported by a rebound in manufacturing.
On the external front, India’s current account deficit narrowed to 0.4% of GDP in 2025 but is expected to widen to 1–1.5% in the coming years due to higher import costs, particularly for fuels and raw materials. Trade disruptions in West Asia could also weigh on exports, while remittance inflows remain a concern, with the Gulf region accounting for around 40% of total inflows.
Moody’s noted that while exports are likely to remain broadly stable, rising commodity prices and supply diversification could increase import bills, further pressuring the current account and overall macroeconomic stability.
