Moody’s Cuts India FY27 Growth Estimates to 6% Amid West Asia War

New Delhi: Global rating agency Moody’s Ratings slashed India’s economic growth estimates for the current fiscal to 6 per cent from 6.8 percent earlier, saying the ongoing conflict in West Asia will moderate growth momentum and raise inflation risks as well.

“While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside,” Moody's said in its credit opinion report on India, while projecting inflation to average 4.8 per cent in FY27, up from 2.4 per cent in FY26.

“In light of India's economic exposure to the ongoing military conflict in the Middle East, we expect real GDP growth to moderate to 6 per cent in fiscal 2026-27 from 6.8 per cent earlier, driven by subdued private consumption, softer industrial activity and a weakening in the momentum of gross fixed capital formation amid elevated prices and higher input costs,” Moody’s said in its report.

Besides, the rating agency also flagged concern over the shortage of cooking gas or LPG in India due to prolonged disruptions. The West Asia region accounts for around 55 per cent of crude oil imports and over 90 per cent of liquified petroleum gas (LPG) supplies to India.

“The LPG shipments due to the conflict, would lead to near-term household shortages, higher fuel and transport costs, and spill-over to food inflation through India’s reliance on imported fertilisers,” the rating agency said.

Moody’s further said that with inflation risks re-emerging and growth remaining robust, policy rates are likely to be held steady or raised gradually in fiscal 2026-27, depending on the duration of geopolitical tensions and their pass-through to food and fuel prices.

Last month, the Organisation for Economic Cooperation and Development (OECD) also projected India’s GDP growth to moderate to 6.1 per cent in the current fiscal from 7.6 per cent growth recorded in 2025-26.

Besides, an economy watch report by EY also said that India's real GDP growth for FY27 could erode by around 1 percentage point, while retail inflation could rise by about 1.5 percentage points from their baseline estimates if the West Asia conflict persists through 2026-27.

Similarly, domestic rating agency Icra expects the growth to moderate to 6.5 per cent in FY27, owing to the adverse impact of elevated energy prices and concerns around energy availability amid the West Asia conflict. “The government's sustained emphasis on infrastructure spending and a gradual easing of trade barriers will continue to support investment activity,” it said.

India's real GDP growth remained robust at 7.5 per cent in calendar year 2025, up from 7.2 per cent in CY 2024 and the highest among G-20 economies, driven primarily by a strong rebound in manufacturing.

Moody’s, however, said that elevated oil, gas and fertiliser prices would intensify pressures on targeted subsidies, resulting in higher outlays, alongside revenue erosion compared to the budget as the global crude prices have risen by almost 50 per cent since the United States and Israel launched military strikes against Iran.

“The recent cut in excise duty on petrol and diesel will hurt tax receipts. Besides, persistently high input costs weigh on household consumption and compress corporate profitability, softening GST collections and corporate income tax revenues. Taken together, we expect higher expenditure commitments and weaker revenue mobilisation to constrain fiscal space and slow the pace of fiscal consolidation in the absence of offsetting revenue measures or expenditure rationalisation,” it added.

The agency also expects goods and services exports to remain broadly stable, even as goods imports will expand on the back of higher global commodity prices, depending on the duration of the ongoing West Asia war, widening India’s current account deficit. “We expect India to face higher import costs, as it secures alternative and potentially more expensive supplies of fertilisers and gas,” the agency said.