Moody's Cuts India FY27 Forecast: Oil Prices Bite

Moody's Ratings has revised India's growth forecast for fiscal year 2027 down to 6%, a reduction from the previously projected 6.8%. This adjustment is attributed to weaker private consumption and softer industrial activity, exacerbated by increased energy and input prices. The ongoing Iran conflict is cited as a key factor influencing these higher costs.

The elevated energy prices are anticipated to widen India's trade deficit and introduce fiscal pressures due to increased government spending on fuel and fertilizer subsidies. However, the report also acknowledges supporting factors such as continued government focus on infrastructure development and gradual easing of trade barriers, which are expected to sustain investment.

Furthermore, strong foreign exchange reserves and resilient services exports are noted as providing a cushion against these economic headwinds. Moody's cautions that persistent high energy prices could strain India's trade balance, inflation, and fiscal position, potentially leading to varied credit impacts across different sectors.

Timely and effective policy responses are deemed crucial for maintaining macroeconomic and credit stability amidst these external pressures. The agency highlighted that sectors like oil marketing, cement, chemicals, and aviation are expected to face the most significant margin pressure due to rising input costs. Conversely, infrastructure and utility companies are seen as resilient, supported by regulated returns and government backing.

Projections indicate India's GDP growth at 7.6% for FY26, according to official estimates. The report also flagged risks related to India's dependence on the Middle East for oil and gas imports, and for nitrogen-based fertilizers, warning that supply disruptions could escalate prices and affect agricultural output and food security.