Summary of this article
Moody’s has slashed its India FY27 growth forecast to 6 per cent
Ongoing US-Iran war could dampen India’s economic growth, put pressure on inflation
Moody’s Ratings has slashed its India growth forecast for the current financial year, amid the ongoing conflict in West Asia. The ratings agency has said that the ongoing US-Iran war could dampen India’s economic growth momentum and put pressure on inflation stoked by rising energy prices.
Moody’s lowered its real gross domestic product (GDP) growth forecast to 6 per cent for FY27, from 6.80 per cent earlier, flagging risks from the prolonged disruptions in supply of crude oil and liquefied petroleum gas (LPG). The war, which is now into its fifth week, has led to restricted energy supply through the Strait of Hormuz, which accounts for about 55 per cent of India’s crude oil imports and over 90 per cent of the country’s LPG requirement.
The ratings agency said that extended supply disruptions, especially in LPG shipments, could lead to household shortages in the near term. Along with this, supply disruptions could also result in higher fuel and transport cost, and spill over to food inflation due to the country’s dependence on fertiliser imports.
India’s inflation rose to 3.20 per cent in February 2026, marking a 10-month high from 2.70 per cent in January, primarily due to higher food prices. Though inflation is currently below the Reserve Bank of India’s (RBI’s) target of 4 per cent, persistent geopolitical risks could lead to a further spike in inflation during the year, Moody’s said. The ratings agency has projected the average inflation in FY27 to be at 4.80 per cent, a sharp jump from 2.40 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 FY26-27, depending on the duration of geopolitical tensions and their pass-through to food and fuel prices,” Moody’s said in its credit opinion report.
Moody’s also expects rising input costs and elevated prices to weigh on private consumption, industrial activity and capital formation. Additionally, the ratings agency also flagged risks from higher oil, gas and fertiliser prices on fiscal consolidation of the country. Moody’s said that higher costs of raw materials could raise subsidies budgeted for the year and wipe out revenues.
Crude oil prices have surged nearly 50 per cent since the US-Iran war began in late February. To limit the surge in energy prices domestically, India has announced cuts in excise duties on petrol and diesel, which in turn is expected to deplete around Rs. 1 lakh crore in tax revenues during the current fiscal. Along with this, prolonged higher input costs could limit consumption, shrink corporate profit margins along with softening GST and corporate tax collections, the ratings agency said.
“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 measures,” the report said.
