India growth forecast cut to 6% amid US-Iran war
What's the story
Moody's Ratings has revised India's economic growth forecast for the current fiscal year downward, from 6.8% to 6%. The adjustment is mainly due to the ongoing conflict in West Asia, which is expected to slow down growth momentum and increase inflation risks. The region accounts for around 55% of India's crude oil imports and over 90% of liquefied petroleum gas (LPG) supplies.
Economic repercussions
Geopolitical risks have tilted inflation outlook
Moody's report highlights that the West Asia conflict could lead to near-term household shortages, increased fuel and transportation costs, and food inflation due to India's dependency on imported fertilizers. The agency also warned that while inflation is currently under control, geopolitical risks have tilted the inflation outlook toward the upside.
Inflation forecast
Projected average inflation rate for FY27
Moody's has projected an average inflation rate of 4.8% for FY27, up from 2.4% in FY26. The agency expects policy rates to remain stable or be gradually increased in fiscal 2026-27, depending on the duration of geopolitical tensions and their impact on food and fuel prices. This comes as India grapples with the economic fallout of the West Asia conflict.
Growth predictions
Other agencies also revise India's GDP growth forecast downward
Along with Moody's, the Organization for Economic Cooperation and Development (OECD) has also revised India's GDP growth forecast downward to 6.1% for the current fiscal year. An Economy Watch report by EY estimates that India's real GDP growth for FY27 could decline by about 1% point if the West Asia conflict continues through 2026-27. Domestic rating agency ICRA expects a similar moderation in growth to 6.5% due to high energy prices and energy availability concerns amid this ongoing conflict.
Fiscal challenges
Moody's flags risk of revenue erosion, higher subsidy outlays
Moody's also flagged that high oil, gas, and fertilizer prices would increase pressures on targeted subsidies. This could lead to higher outlays and revenue erosion compared to the budget. The agency expects these factors to constrain fiscal space and slow down the pace of fiscal consolidation in absence of offsetting revenue measures or expenditure rationalization.