Moody’s Ratings cuts India’s FY27 growth forecast to 6% on higher energy costs

Moody’s Ratings lowered India’s FY27 growth forecast to 6%, from 6.8% earlier, citing weaker private consumption and softer industrial activity amid higher energy and input prices driven by the Iran war. Elevated energy prices are expected to widen India’s trade deficit, moderate gross domestic product (GDP) growth and increase fiscal pressures due to higher spending on fuel and fertiliser subsidies, it mentioned in a report released on Tuesday.

However, Moody’s noted that continued government focus on infrastructure spending and gradual easing of trade barriers will sustain investment activity. Further, strong foreign exchange reserves and services exports are likely to provide some cushion.

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Input cost pressures are rising as the Iran conflict disrupts supply chains and production.

India’s GDP growth is projected at 7.6% for FY26, as per official estimates.

Moody’s cautioned that if high energy prices persist, they could strain India’s trade balance, inflation and fiscal position, while also leading to uneven credit impacts across sectors.

The report noted that timely and effective policy responses will be critical in maintaining macroeconomic and credit stability amid these external pressures.

“The country's high dependence on Middle Eastern oil and gas imports raises near-term supply-disruption risks, although strategic petroleum reserves and commercial inventories will mitigate economic disruption over the next few months,” the report said.

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It also flagged risks from India’s dependence on the region for nitrogen-based fertilisers, such as urea and ammonia, warning that supply disruptions could drive up prices and pose challenges for agricultural output and food security.

Sectors such as oil marketing and fuel‑intensive industries like cement, chemicals and aviation are expected to face the greatest margin pressure, as higher input costs are not fully passed on to consumers. In contrast, infrastructure and utility companies remain resilient, supported by regulated returns, access to domestic fuel and strong government backing, according to Moody’s Ratings.

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Remittances

The rating agency highlighted that prolonged economic disruption in the Gulf Cooperation Council (GCC) region could reduce remittance inflows, which combined with a wider trade deficit will worsen India's current account deficit. These challenges may further worsen rupee depreciation, which prompted intervention by the central bank.

The Middle East accounts for over one-third of India’s total remittance inflows.

Despite these risks, India’s external position remains relatively stable, supported by substantial foreign exchange reserves, low external debt and limited dependence on external financing.