Moody's Ratings has cut India's GDP growth forecast for 2026 by 0.8 percentage points to 6% on subdued private consumption, capital formation, and industrial activity amid higher energy costs. According to reports from Press Trust of India, Rediff Moneynews, and Devdiscourse, the ratings agency warned that India remains highly vulnerable to rising oil and LNG prices because it imports nearly 90% of its energy needs. For calendar year 2027, Moody's slashed GDP growth estimates by 0.5 percentage points to 6%, reflecting lingering headwinds that gradually fade as shipping flows stabilise and energy supplies improve. As per Moody's, the central scenario projection of 6% growth in both 2026 and 2027, following 7.5% growth in 2025, reflects more subdued private consumption, capital formation, and industrial activity amid tighter financial conditions and higher energy costs.
As reported by Moody's, India is particularly vulnerable to high oil prices given its heavy reliance on imported crude and LNG. The agency noted that coal powers about 70% of India's electricity generation, while non-fossil sources continue to expand. As a net grain producer, agricultural exports will benefit in the near term from higher prices, but higher fuel and fertilizer costs would weigh on government finances, potentially constraining planned capital spending. Persistently high energy costs would keep inflation elevated, compress profits, weaken investment and strain public finances, while major central banks remain on hold but ready to tighten financial conditions if necessary. According to Moody's, over the next six months, the impact from higher energy prices and fuel and fertilizer-related shortages will vary widely across countries, reflecting differences in exposure and resilience.
According to Moody's, India imports 60% of its LPG usage and of that, 90% flows through the now-closed Strait of Hormuz. The agency highlighted that India is importing more Russian crude, while Japan and South Korea are shifting incrementally toward US barrels. Moody's noted that economies face a mix of shared and idiosyncratic challenges from the fallout, with Asia-Pacific being the most exposed region. China is partly insulated by its reliance on coal and renewables, while India remains vulnerable to energy supply disruptions. Several Asian economies are actively diversifying their supplier mix by expanding oil imports from existing partners and exploring new sources. The agency warned that drawn-out negotiations between US and Iran, ongoing shipping blockades and the risk of military escalation threaten the truce's durability, with the magnitude of growth and inflation effects hinging on the duration of the Strait of Hormuz's closure.
In its Global Macro Outlook May update, Moody's said the global outlook remains highly uncertain amid an increasingly prolonged confrontation and fragile ceasefire between the US and Iran. The agency estimated growth losses ranging from around 0.8 percentage points for India. The US-based rating agency warned that drawn-out negotiations between US and Iran, ongoing shipping blockades and the risk of military escalation threaten the truce's durability. Against this unstable backdrop, the global economy faces another potential energy and food-price shock, particularly if transit flows to and from the Gulf remain constrained. Strategic reserves offer only short-term protection as physical global energy shortages will become increasingly binding within months. Against this challenging environment, India's growth trajectory reflects the broader impact of geopolitical tensions on emerging markets and their energy-intensive economies.
The Moody's forecast aligns with other major agencies' revised projections for India's economic growth. The Indian economy will expand at 6.5% in 2026, according to the IMF in its World Economic Outlook report in April, which indicated that growth would have been much faster without the US-Iran conflict. The OECD revised the GDP growth rate down from 7.6% to 6.1%, while the World Bank raised estimates to 6.6% for India amid the West Asia crisis. The RBI pegged the growth forecast at 6.9%. The Moody's report comes against the backdrop of PM Modi's appeal to reduce consumption of petrol, diesel, gold, edible oils and fertilizer, which is expected to put downward pressure on GDP growth. The PM has also urged people to try pooling cars and work from home as far as possible, and to send goods by rail rather than road transport to help curb consumption of petrol and diesel.
