Global ratings agency Moody’s has cut India’s economic growth estimate for the financial year 2026-’27 to 6% from 6.8% forecast earlier, citing the effects of the war in West Asia, PTI reported.
In its credit opinion on India published on March 31, the agency said that prolonged disruptions, especially of liquefied petroleum gas supply, would cause near-term shortages at the household level. It also warned of increased fuel and transport costs, and spillovers to food inflation because of the country’s dependence on imported fertilisers.
Moody’s said that the slashing of real gross domestic product growth to 6% in the current fiscal year would be driven by “subdued private consumption, softer industrial activity and a weakening in the momentum of gross fixed capital formation amid elevated prices and higher input costs”, PTI reported.
The agency predicted that the average inflation in India will rise to 4.8% in 2026-’27, up from 2.4% in 2025-’26. “While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside,” PTI quoted the Moody’s report as saying.
The ratings agency predicted that policy rates are likely to be kept steady or raised gradually in 2026-’27, depending on how long the conflict lasts and the extent to which its effects pass to fuel and food prices.
Since the conflict in West Asia began on February 28, Iran has blocked the Strait of Hormuz, a critical maritime chokepoint, for most commercial shipping.
India imports about 60% of its LPG consumption, about 90% of which travels through the strait.
Further, about 55% of India’s crude oil imports come from West Asia. The Union government has claimed that since the conflict began, 70% of the country’s crude oil imports are being routed from outside the Strait of Hormuz.
Due to the disruption, the government had initially curtailed the supply of LPG to commercial establishments and had prioritised domestic supplies. On March 27, the government increased the commercial allocation of liquefied petroleum gas to 70% of pre-conflict levels, up from 50%.
However, on April 1, the price of commercial LPG was increased by Rs 195.5, after which a 19-kg commercial LPG cylinder in Delhi is now priced at Rs 2,078.5.
The disruptions have led to temporary closures of restaurants, and reports of migrant workers returning home due to higher prices in the black market for LPG cylinders and the loss of employment.
Also read: Why the LPG crisis is reviving pandemic fears among migrant workers
The prediction by Moody’s of softening growth is in line with estimates by the Organisation for Economic Cooperation and Development, which projected India’s gross domestic product growth to moderate to 6.1% in 2026-’27 from 7.6% in the previous year, according to PTI.
A report by accounting firm Ernst & Young also said that the country’s real GDP growth in the current fiscal year could erode by about 1 percentage point and retail inflation could increase by 1.5% over the baseline estimates if the war in West Asia persists through 2026-’27.
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