Moody's Slashes India's FY27 Growth Forecast To 6% As West Asia Conflict Flares

Moody's Ratings has cut India's growth forecast for FY27, warning that the ongoing West Asia conflict could dampen economic momentum while pushing inflation higher.

In its latest credit opinion, Moody's Ratings lowered India's real GDP growth estimate to 6% from 6.8% earlier. The downgrade reflects expectations of weaker private consumption, softer industrial activity, and slowing investment amid rising input costs linked to geopolitical tensions.

The agency cautioned that supply disruptions—especially in LPG shipments—could lead to near-term shortages, higher fuel and transport costs, and spillovers into food inflation due to India's reliance on imported fertilisers. West Asia accounts for around 55% of India's crude oil imports and over 90% of LPG supplies.

"While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside," Moody's said, projecting inflation to average 4.8% in FY27, up from 2.4% in FY26.

With inflation risks re-emerging, policy rates may be held steady or raised gradually in FY26–27, depending on how long geopolitical tensions persist and how they impact food and fuel prices.

Last month, the Organisation for Economic Co-operation and Development projected India's GDP growth at 6.1% for the current fiscal, down from 7.6% in 2025-26.

An Economy Watch report by EY said India's real GDP growth could fall by about 1 percentage point, while retail inflation may rise by roughly 1.5 percentage points if the West Asia conflict continues through FY27.

Domestic rating agency ICRA expects growth to moderate to 6.5% in FY27 due to elevated energy prices and concerns around supply availability.

India's GDP growth remained strong at 7.5% in calendar year 2025, the highest among G-20 economies, supported by a rebound in manufacturing.

Moody's said elevated oil, gas and fertiliser prices would increase subsidy burdens and strain government finances. At the same time, recent excise duty cuts on petrol and diesel will weigh on tax revenues.

Higher input costs are also likely to hurt household consumption and corporate profitability, impacting GST collections and 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," it said.

Moody's expects gradual debt consolidation, with central government debt seen declining to around 50% of GDP by 2030-31 from about 57% in 2024-25.

India's current account deficit narrowed to around 0.4% of GDP in 2025 from 0.9% a year earlier, but is expected to widen to 1–1.5% in 2026 and 2027 due to higher import costs.

The agency said imports will rise on the back of elevated commodity prices, while exports are likely to remain stable. Trade disruptions in West Asia could also dampen demand for Indian agricultural exports.

Remittances pose another risk, with the Gulf region contributing nearly 40% of inflows, Moody's added.

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