Moody’s cuts India’s 2026-’27 growth forecast to 6% over West Asia war
text_fields
Global ratings agency Moody’s has lowered India’s economic growth forecast for the financial year 2026-’27 to 6% from its earlier estimate of 6.8%, citing the impact of the ongoing war in West Asia, PTI reported.
In its credit opinion on India published on March 31, Moody’s warned that prolonged disruptions, particularly in the supply of liquefied petroleum gas (LPG), could lead to near-term shortages at the household level. The agency highlighted the risk of rising fuel and transport costs, as well as spillovers to food inflation due to India’s reliance on imported fertilisers.
The ratings agency said the downward revision of real gross domestic product (GDP) growth to 6% would be 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,” according to PTI.
Moody’s also projected that average inflation in India would rise to 4.8% in 2026-’27, up from 2.4% in 2025-’26. “While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside,” the report said.
The agency predicted that policy rates are likely to be kept steady or increased gradually in 2026-’27, depending on the duration of the conflict and the extent to which it affects fuel and food prices.
The war in West Asia, which began on February 28, has led Iran to block the Strait of Hormuz, a critical maritime chokepoint for commercial shipping. India imports around 60% of its LPG consumption, approximately 90% of which passes through the strait, while about 55% of the country’s crude oil imports come from West Asia. The Union government has stated that since the conflict began, 70% of India’s crude oil imports have been rerouted through alternative channels outside the strait.
The disruptions initially prompted the government to curb LPG supply to commercial establishments, prioritising domestic households. On March 27, commercial allocation of LPG was raised to 70% of pre-conflict levels from 50%. However, on April 1, commercial LPG prices were increased by Rs 195.5, bringing the price of a 19-kg cylinder in Delhi to Rs 2,078.5.
These supply disruptions have caused temporary closures of restaurants and reportedly forced some migrant workers to return home due to higher black-market LPG prices and job losses.
Moody’s forecast aligns with estimates by the Organisation for Economic Co-operation and Development, which projected India’s GDP growth to moderate to 6.1% in 2026-’27 from 7.6% in the previous year. A report by accounting firm Ernst & Young also noted that India’s real GDP growth could fall by about 1 percentage point, with retail inflation rising 1.5% above baseline estimates if the West Asia conflict persists through 2026-’27.
