West Asia Conflict May Slow India’s FY27 Growth To 6%, Raise Inflation: Moody's Ratings

This aligns with recent estimates by other global and domestic agencies, including the Organisation for Economic Co-operation and Development and ICRA, which have also flagged a moderation in growth outlook. Inflation Risks Rise In its credit opinion report on India, Moody's warned that disruptions, particularly in LPG supplies, could lead to household shortages, higher fuel and transport costs, and spillover effects on food inflation due to India’s dependence on imported fertilisers, PTI reported, citing the report. Inflation is projected to average 4.8 per cent in FY2027, up from 2.4 per cent in FY2026, with geopolitical risks tilting the outlook upward. The agency indicated that interest rates may remain steady or be raised gradually, depending on how long these pressures persist. High Dependence on Energy Imports The report highlighted India’s significant reliance on West Asia, which accounts for about 55 per cent of crude oil imports and over 90 per cent of LPG supplies. A sustained disruption in the region could therefore increase input costs across sectors. Global crude prices have surged sharply following recent military escalations, further adding to inflationary pressures. Fiscal Pressures Likely to Increase Higher oil, gas, and fertiliser prices are expected to push up subsidy expenditures while reducing government revenues. Measures such as excise duty cuts on fuel could further impact tax collections. Moody’s said rising expenditure and weaker revenue mobilisation may constrain fiscal space and slow the pace of fiscal consolidation unless offset by corrective measures. External Sector to Face Strain India’s current account deficit is expected to widen to around 1–1.5 per cent of GDP in the coming years, driven by higher import bills for fuel and raw materials. While exports are likely to remain stable, trade disruptions in West Asia could weaken external demand, particularly for agricultural goods. The report also flagged risks to remittance inflows, noting that the Gulf region accounts for about 40 per cent of India’s total remittances. Outlook Remains Cautious Despite these challenges, India’s growth remains relatively strong compared to global peers, supported by infrastructure spending and policy measures. Moody’s expects gradual debt consolidation in line with the government’s medium-term fiscal targets, even as near-term risks remain elevated due to global uncertainties. (KNN Bureau)