Moody’s downgrades India’s growth forecast to 6% from 6.8%

Amid the ongoing West Asia crisis leading to disruptions in the global economy, Moody’s Ratings has downgraded India’s growth forecast for FY27 to 6 per cent from 6.8 per cent estimated earlier.

The credit rating agency has cited weaker consumption and industrial activity amid elevated energy prices and rising input costs following the Middle East conflict.

Advertisement

In a report titled, “Middle East Conflict – India: Energy shock fuels external, inflationary and sectoral risks”, Moody’s said, “In light of India’s economic exposure to the military conflict in the Middle East, we expect real GDP growth to ease to 6 per cent in fiscal 2026–27, from an earlier projection of 6.8 per cent, driven by more subdued private consumption and softer industrial activity amid elevated energy prices and higher input costs.”

Moody’s said higher energy costs are expected to push up inflation and strain fiscal balances, as the government may need to increase spending on fuel and fertiliser subsidies.

“Fertilizer and cooking gas shortages will constrain agricultural activity and household consumption, key components of India’s economy,” it said.

As a major importer of crude oil, liquefied natural gas (LNG), and liquefied petroleum gas (LPG), India remains vulnerable to sustained price pressures.

At the sectoral level, Moody’s said the oil marketing companies (OMCs) and fuel-dependent industries are expected to be the most affected.

State-run OMCs are incurring under-recoveries of Rs 15–20 billion per day, with a combined EBITDA of about Rs 900 billion in FY25, as higher crude costs are not fully passed on to consumers.

Moody’s said India retains buffers in the form of strong services exports, sizable foreign exchange reserves, and a stable domestic funding base, although a prolonged period of high energy prices could test macroeconomic stability and investor confidence.

The report further highlighted that the energy-intensive sectors like cement, chemicals, and fertilisers are also likely to face rising input and logistics costs, while gas supply disruptions have led to rationing in some cases.

Airlines face a dual shock from higher jet fuel prices and disruptions to international routes, with temporary domestic price caps offering limited and uncertain relief.

Recently, the United Nations has also revised India’s growth outlook saying the country is projected to grow at 6.4 per cent this year and 6.6 per cent in 2027. Inflation for the country is projected to be 4.4 per cent this year and 4.3 per cent in 2027.

The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) said in a report that the economies in South and South-West Asia grew by 5.4 per cent in 2025, compared to 5.2 per cent in 2024, driven largely by strong growth in India.

India’s growth edged up to 7.4 per cent in 2025, supported by robust consumption, especially from the rural economy along with goods and services tax rate cuts, and export frontloading ahead of the United States’ tariffs, the report said.