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Moody's Ratings Cuts India Growth Forecast to 6% Amid West Asia Tensions
Moody's Report: Moody's has expressed concern about India's economic growth and inflation due to the ongoing conflict in West Asia. According to the report, energy prices and supply constraints could slow growth and increase economic pressure.
The economic outlook of India in 2026-27 was revised by Moody’s Ratings to be 6% from 6.8%. According to Moody's, the persistent geopolitical risks in West Asia would have an impact on the economy of India and also increase the risk of inflation.
According to the report, disruptions in LPG supplies and increases in fuel prices could have a domestic impact. This will increase transportation costs and put pressure on food inflation, as India is dependent on fertilizer imports. India imports approximately 55 percent of its crude oil and over 90 percent of its LPG from West Asia.
Moody's predicts that there will be an average inflation rate of 4.8% in 2026-27, compared to 2.4% in 2025-26. Inflation can rise due to geopolitical risks. In addition, according to the report, with increased inflation and poor growth, the interest rate policy may remain unchanged or may increase slightly, depending on the duration and impact of the geopolitical risk.
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According to the agency, a decline in private consumption, slowdown in industrial activity, and high costs could slow investment, impacting growth. The OECD also recently projected India's growth rate to be 6.1 percent. An EY report states that if the conflict continues, the growth rate could decline by about one percent. Domestic rating agency ICRA has projected a growth rate of 6.5 percent in the 2026-27 fiscal year.
According to the report, higher prices for oil, gas, and fertilizers will increase the burden of government subsidies and put pressure on revenue. Furthermore, the reduction in excise duty on petrol and diesel could impact tax collection.
India's current account deficit is projected to narrow to 0.4 percent in 2025, but it is projected to widen to between 1-1.5 percent in 2026-27. This pressure could increase due to expensive imports and trade barriers. The report also states that remittances from the Gulf region, which account for approximately 40 percent of total flows, could also be at risk.
