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

Amid the ongoing West Asia conflict, which has led to the blockage of the Strait of Hormuz and affected the global economy, Moody’s Ratings has slashed India’s economic growth estimate for the current fiscal to 6 per cent from 6.8 per cent earlier.

It said the ongoing conflict in West Asia will moderate growth momentum and raise inflation risks.

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Moody’s said prolonged disruptions, particularly LPG shipments due to the conflict, would lead to near-term household shortages, higher fuel and transport costs, and spillovers to food inflation through India’s reliance on imported fertilisers. The region accounts for around 55 per cent of India’s crude oil imports and over 90 per cent of its liquefied petroleum gas (LPG) supplies.

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

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, Moody’s said.

The report further said that 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.

Earlier, EY had also said 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.

On the other hand, ICRA expected 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.

Amid the ongoing crisis, the central government has said it will introduce a new credit guarantee scheme on lines similar to those adopted during the Covid pandemic.

The proposed scheme aims to ease funding access for companies facing higher input and logistics costs. The scheme is likely to provide guarantees up to Rs 2-2.5 lakh crore, and will be unveiled in two weeks.