Moody’s cuts India’s FY27 growth forecast to 6% on higher oil prices

Energy shock | Crude surge pressures inflation and fiscal balance

mumbai

A prolonged disruption in energy supply can widen India's trade deficit and strain the fiscal account of the world's fastest-growing major ​economy, according to rating agency Moody's. Brent Crude prices have shot up 31% since the U.S.-Israeli war on Iran began on February 28 and have been see-sawing with each development, while prospects of peace fuelled a recovery in stock ​markets globally, Reuters reported.

India is the world's third-largest crude importer, and higher ​prices tend to increase its import bill, inflation, and impact ⁠corporate margins. As a result, foreign investors offloaded Indian shares worth $18.6 ​billion so far in 2026—March logged a record $12.7 billion worth of net outflows.

"Given ​lingering risks and because some production operations in the Middle East and logistical assets will take time to restart and reposition, risk premia and key commodity prices ​will likely remain structurally higher for some time," Moody's Ratings said ​in a report on Monday.

The rating agency currently has "Baa3" rating on India with a "stable" outlook. ⁠It had trimmed its growth forecast for India's real gross domestic product to 6% for fiscal 2027 from 6.8% earlier, factoring in the impact of the Iran war. "A prolonged disruption would pose more material challenges, ​potentially entrenching inflation, ​straining fiscal ⁠and monetary policy flexibility and testing external investor confidence," Moody's said.

The impact of higher crude oil on companies ​will be uneven, the report noted, with oil marketing ​companies (OMCs) and ⁠fuel-dependent sectors such as cement and chemicals likely bearing the brunt of the price shock.

"Cost hikes associated with inland transportation have been contained for ⁠now ​through fuel subsidies borne by state-owned OMCs, ​but this has shifted cost pressures onto their balance sheets in a manner we view ​as unsustainable," Moody's added.

India to grow 6.4% in 2026: UN 

India's economy is projected to expand by 6.4% in 2026 and 6.6% in 2027, according to a new UN report. The report from the United Nations Economic and Social Commission for Asia and the Pacific  said that economies in South and South-West Asia grew 5.4% in 2025, up from 5.2% in 2024. This was driven largely by India's strong growth of 7.4% in 2025. The report further stated that robust rural consumption, goods and services tax cuts and export front-loading ahead of US’ tariffs supported India's strong growth, IANS reported.