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Informist, Monday, Apr. 6, 2026

 

MUMBAI/NEW DELHI – Moody's Ratings has lowered its forecast for India's GDP growth in 2026-27 (Apr-Mar) by 80 basis points to 6.0% due to the ongoing war in West Asia, which is seen hitting private consumption and industrial activity. The war in West Asia is also seen weakening the momentum of gross fixed capital formation in India amid higher prices and input costs, Moody's said in a report.

 

However, the rating agency has maintained its India's growth projection for FY26 at 7.3% even after the GDP base year was changed to FY23 from FY12. The Indian economy grew 7.8% in the December quarter, based on the new GDP series. The government's second advance estimate has projected FY26 GDP growth at 7.6%. Moody's projects the Indian economy to grow 6.2% in FY28.

 

The US-Israel war on Iran, which started on Feb. 28, has increased India's exposure to energy and price shocks given New Delhi's dependence on West Asia region for crude oil and liquefied petroleum gas supplies, Moody's said. If prolonged, fuel shortages could also dampen industrial activity and weigh on growth in India, Moody's said.

 

"Prolonged disruptions, particularly to LPG shipments, would lead to near-term household shortages, higher fuel and transport costs, and spillovers to food inflation through India's reliance on imported fertilisers," the rating agency said. "While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside."

 

Moody's projects inflation in India to rise to 4.8% this year from 2.4% in FY26. Inflation is seen easing slightly to 4.6% in FY28, the rating agency said. Retail inflation rose to 3.21% in February, based on the new CPI series with 2024 as the base year. 

 

"With inflation risks re-emerging and growth remaining robust, policy rates are likely to be held steady or raised gradually in fiscal 2026–27 depending on the duration of geopolitical tensions and their pass-through to food and fuel prices," Moody's said. The Reserve Bank of India's Monetary Policy Committee is expected to leave the repo rate unchanged at 5.25% on Wednesday, according to an Informist Poll. Some economists and market participants expect the rate-setting panel to raise rates later in the year to control inflation and currency depreciation.

 

FISCAL SUPPORT AND RESTRICTIONS

Tactical spending by the government will support growth in India while the ongoing West Asia war will weigh on the pace of fiscal consolidation, Moody's said. The government's push for infrastructure spending and a gradual easing of trade barriers will support investment activity in India, the rating agency said. Thanks to this, Moody's expects a pick-up in private investment.

 

The rating agency expects high oil, gas, and fertiliser prices to lead to higher outlays on subsidies and revenue erosion compared with the Budget estimates. The government's decision to cut the special excise duty on petrol and diesel by INR 10 to have a negative impact on tax receipts, Moody's said. 

 

"Beyond this direct effect, we expect persistently high input costs to weigh on household consumption and compress corporate profitability, softening GST (goods and services tax) collections and corporate income tax revenues," Moody's 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 revenue measures or expenditure rationalisation."

 

While the Budget pegged FY27 fiscal deficit at 4.3% of GDP, the government now sees it at 4.5% of GDP based on the downward revision in India's nominal GDP as per the new series. Finance Minister Nirmala Sitharaman last month said the government will manage its fiscal deficit for the upcoming financial year despite foregoing revenue from the cut in excise duty on petrol and diesel.

 

"Fiscal accommodation in the context of the uncertain global macroeconomic outlook, including revenue-eroding measures, could impede progress towards debt reduction and exacerbate already weak debt affordability," said Moody's, which has a Baa3 rating on India with a stable outlook. Moody's expects gradual debt consolidation, consistent with the government's medium-term objective of reducing central government debt to around 50% of GDP by FY31 from around 57% of GDP in fiscal FY25.

 

The rating agency estimates India's current account deficit to widen to 2% of GDP in FY27 from 0.4% of GDP in FY26. India's current account deficit was 1.3% of GDP for the December quarter.  End

 

US$1 = INR 93.07

 

Reported by Shweta and Shubham Rana

Edited by Akul Nishant Akhoury

 

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