Moody's cuts India FY27 growth forecast to 6% amid West Asia conflict

Moody’s Ratings has lowered India’s GDP growth forecast for FY27 to 6% from 6.8% earlier, citing rising risks from the ongoing West Asia conflict, which is expected to weigh on economic momentum and push up inflation.
Inflation Risks Rise, Fiscal Pressures Mount
In its latest credit opinion report on India, the agency expressed concern that prolonged geopolitical tensions could disrupt key imports, particularly liquefied petroleum gas (LPG), leading to short-term supply shortages, higher fuel and transport costs, and spillover effects on food inflation due to India’s reliance on imported fertilisers.The West Asia region accounts for nearly 55% of India’s crude oil imports and over 90% of LPG supplies, making the economy vulnerable to supply-side shocks. Moody’s said that while inflation remains contained for now, risks have shifted to the upside, projecting inflation to average 4.8% in FY27, compared with 2.4% in FY26.The report noted that growth moderation will be driven by weaker private consumption, softer industrial activity, and slowing investment momentum amid elevated input costs. It added that policy rates may remain steady or see gradual hikes depending on how long geopolitical tensions persist and their impact on fuel and food prices.
Other global and domestic agencies have echoed similar concerns. The Organisation for Economic Co-operation and Development (OECD) has projected India’s growth at 6.1% for FY27, while ICRA estimates it at 6.5%. An Economy Watch report by EY suggested growth could drop by up to 1 percentage point if the conflict continues through the fiscal year.Despite the downgrade, India remains one of the fastest-growing major economies, with GDP expanding 7.5% in calendar year 2025, supported by a strong manufacturing rebound.
However, Moody’s cautioned that rising global crude prices—up nearly 50% since military strikes involving the United States, Israel, and Iran—could strain government finances. Higher fuel, gas, and fertiliser costs are expected to increase subsidy burdens, while recent excise duty cuts on petrol and diesel may further impact revenue collections.
Elevated input costs are also likely to dampen household consumption and corporate profitability, potentially affecting GST and corporate tax revenues. Moody’s warned that higher expenditure commitments and weaker revenue mobilisation could slow fiscal consolidation unless offset by corrective measures.On the external front, India’s current account deficit is expected to widen to 1–1.5% of GDP in FY26 and FY27, driven by higher import bills, particularly for energy and raw materials. The agency also flagged risks to remittances, noting that the Gulf region accounts for around 40% of India’s inflows.Overall, Moody’s said India’s economic outlook will depend significantly on the duration and intensity of the West Asia conflict, with prolonged disruptions likely to amplify inflationary pressures and moderate growth prospects.

(Business Correspondent)