New Delhi: The West Asia conflict is expected to hit India’s economic growth for the current fiscal 2026-27. Amid the US-Iran war, Moody’s Ratings has reduced India’s economic growth estimates for FY27 to 6 per cent from 6.8 per cent earlier, saying the conflict will moderate growth momentum and increase inflation risks.
Giving reasons for its India’s GDP projections, the global financial body said the ongoing West Asia conflict would lead to near-term household LPG shortages, increased fuel and transport costs, and spillovers to food inflation through India’s reliance on imported fertilisers.
West Asia Conflict’s Impact on India’s FY26 GDP Growth
It may be noted that the West Asia region accounts for around 55 per cent of crude oil imports and over 90 per cent of liquified petroleum gas (LPG) supplies to India.
“While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside,” Moody’s said. It has projected country’s inflation to average 4.8 per cent in the current financial year, i.e., 2026-27, up from 2.4 per cent in FY26.
Moody’s is of the opinion that Reserve Bank of India (RBI) is expected to keep policy rates unchanged as inflation risks are re-emerging and growth remaining robust.
“In light of India’s economic exposure to the ongoing military conflict in the Middle East, we expect real GDP growth to moderate to 6 per cent in fiscal 2026-27 from 6.8 per cent earlier, 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,” according to the Moody’s report, dated March 31, accessed by PTI.
Indian Economy outlook
In March 2026, the Organisation for Economic Cooperation and Development (OECD) projected India’s GDP growth to moderate to 6.1 per cent in FY27, while earlier it had expected the growth rate at 7.6 per cent.
Economy Watch report by EY estimated India’s real GDP growth for 2026-27 to decline by around 1 percent, and retail inflation could jump by about 1.5 percentage points from their baseline estimates if the US-Iran war continues through 2026-27.
Domestic rating agency Icra has projected India to grow at 6.5 per cent in FY27. It said high energy prices and concerns around energy supply would impact the economy
Moody’s said higher oil, gas and fertiliser prices would increase pressures on targeted subsidies, resulting in higher outlays, alongside revenue erosion compared to the budget.
Global crude prices have jumped by almost 50 per cent since US-Israel launched joint military strikes against Iran on February 28, triggering retaliation from Tehran.
The recent cut in excise duty on petrol and diesel will hurt tax receipts, Moody’s said.
“Taken together, we expect higher expenditure commitments and weaker revenue mobilisation to constrain fiscal space and slow the pace of fiscal consolidation in the absence of offsetting revenue measures or expenditure rationalisation,” it added.
With PTI inputs