Moody’s cuts India FY27 growth forecast to 6% amid West Asia conflict

Moody's Ratings has lowered India’s GDP growth forecast for FY27 to 6% from 6.8% earlier, citing the economic fallout of the ongoing West Asia conflict. In its latest credit opinion, the agency said prolonged geopolitical tensions are likely to moderate growth momentum while pushing up inflation risks. 

Energy disruptions pose key risk to inflation 

Moody’s flagged supply disruptions, particularly in LPG shipments, as a major near-term concern, warning of household shortages and rising fuel and transport costs. These pressures could also spill over into food inflation, given India’s reliance on imported fertilisers. 

The region accounts for nearly 55% of India’s crude oil imports and over 90% of liquefied petroleum gas supplies. “While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside,” Moody’s said, projecting average inflation at 4.8% in FY27, up from 2.4% in FY26. 

Consumption, investment may lose steam 

The agency expects economic growth to slow due to subdued private consumption, weaker industrial activity and moderation in capital expenditure momentum amid elevated input costs. 

With inflationary pressures resurfacing, monetary policy is likely to remain cautious, with interest rates either held steady or tightened gradually depending on the persistence of global tensions. 

Global and domestic institutions have also flagged downside risks to growth, with the Organisation for Economic Co-operation and Development projecting GDP growth at 6.1% for FY27, Ernst & Young estimating that growth could drop by about 1 percentage point if the conflict persists, and ICRA expecting growth to moderate to 6.5% due to elevated energy prices. 

Despite the slowdown, investment activity is expected to find some support from continued government infrastructure spending and gradual easing of trade barriers. 

Fiscal pressures likely to rise 

Moody’s warned that higher oil, gas and fertiliser prices could increase subsidy burdens while eroding government revenues. A recent cut in excise duty on petrol and diesel may further dent tax collections, even as elevated input costs weigh on consumption and corporate profitability—impacting GST and income tax revenues. “Higher expenditure commitments and weaker revenue mobilisation could constrain fiscal space and slow the pace of consolidation,” the report noted. 

However, the agency expects gradual debt reduction in line with the government’s target of bringing central debt down to around 50% of GDP by FY31 from about 57% in FY25. 

External sector faces emerging vulnerabilities 

India’s current account deficit narrowed to 0.4% of GDP in 2025 but is projected to widen to 1–1.5% in 2026 and 2027 due to rising import costs, especially for energy and raw materials. While exports are expected to remain broadly stable, higher global commodity prices, and supply disruptions could push up import bills. 

India’s economy grew 7.5% in calendar year 2025, among the fastest in the G20, driven by a manufacturing rebound. However, Moody’s cautioned that rising geopolitical tensions and commodity prices could test macroeconomic stability in the coming fiscal year.