Moody’s Ratings on Tuesday cut India’s GDP growth forecast for 2026 by 0.8 percentage points to 6%, citing weaker private consumption, slower capital formation, and subdued industrial activity amid elevated energy costs and tighter financial conditions. 

In its Global Macro Outlook – May Update, the rating agency said India is among the economies most vulnerable to prolonged energy disruptions due to its heavy dependence on imported crude oil and liquefied natural gas (LNG). 

“The global outlook remains highly uncertain amid an increasingly prolonged confrontation and fragile ceasefire between the US and Iran. We estimate growth losses ranging from around 0.8 percentage points for India,” Moody’s said. 

For 2027 as well, Moody’s lowered India’s GDP growth estimate by 0.5 percentage points to 6%, compared with its earlier projections. The agency said the downgrade reflects lingering economic headwinds, though conditions are expected to improve gradually as shipping flows stabilise and energy supplies recover. 

Spikes in oil and gas prices may keep inflation elevated

Moody’s noted that India imports nearly 90% of its energy requirements, making the economy particularly susceptible to spikes in global oil and gas prices. Persistently high energy costs, it warned, could keep inflation elevated, compress corporate margins, weaken investments and put pressure on government finances. 

“Our central scenario projection of 6% growth in both 2026 and 2027, following 7.5% growth in 2025, reflects more subdued private consumption, capital formation and industrial activity amid tighter financial conditions and higher energy costs,” the agency said. 

The report highlighted that India imports around 60% of its LPG consumption, of which nearly 90% passes through the Strait of Hormuz, a key shipping route currently facing disruptions due to geopolitical tensions in the Gulf region. 

Moody’s said prolonged negotiations between the US and Iran, ongoing shipping blockades, and the possibility of military escalation continue to threaten the durability of the fragile truce in the region. Any sustained disruption in transit flows through the Gulf could trigger another global energy and food-price shock, it warned. 

The agency added that while India may benefit in the near term as a net grain producer through higher agricultural export prices, rising fuel, and fertiliser costs could strain government finances and potentially limit planned capital expenditure. 

Coal continues to account for nearly 70% of India’s electricity generation, although non-fossil fuel sources such as solar, wind and hydro are steadily expanding. 

Moody’s also pointed out that Asian economies are diversifying their energy sourcing strategies to reduce dependence on the Gulf region. India has increased imports of Russian crude oil while countries such as Japan and South Korea are gradually shifting towards US oil supplies. “China is partly insulated by its reliance on coal and renewables while India remains vulnerable,” Moody’s said, adding that Asia-Pacific remains the region most exposed to prolonged energy supply disruptions.