Moody’s Cuts India’s Growth Forecast to 6% Amid Energy Shock and Global Uncertainty

In its Global Macro Outlook May update released on Tuesday, Moody’s warned that the prolonged confrontation and fragile ceasefire between the United States and Iran have intensified risks for the global economy, particularly for energy-importing nations such as India. The agency stated that the economic fallout from higher fuel prices, supply disruptions and shipping blockades would vary across countries depending on their resilience and exposure to imported energy.

The rating agency projected growth losses of nearly 0.8 percentage points for India as elevated energy prices and tighter financial conditions weigh heavily on economic momentum. Moody’s also reduced India’s Gross Domestic Product growth forecast for calendar year 2027 by 0.5 percentage points to 6 per cent, indicating that the recovery would remain slow despite gradual stabilisation in shipping flows and improvements in energy supplies.

According to Moody’s, India remains “particularly vulnerable” to sustained increases in crude oil prices because of its heavy dependence on imported crude oil and liquefied natural gas. The country imports nearly 90 per cent of its energy requirements, leaving the economy exposed to prolonged global supply disruptions and price volatility.

The agency noted that India could benefit temporarily from higher agricultural export prices as a net grain producer. However, rising fuel and fertilizer costs are expected to place severe pressure on government finances, potentially restricting planned capital expenditure and infrastructure spending.

Moody’s stated that its central scenario forecast of 6 per cent growth for both 2026 and 2027 follows estimated growth of 7.5 per cent in 2025. The downgrade reflects weaker household spending, slower investment activity and reduced industrial output caused by tighter financial conditions and surging energy prices.

The report further warned that persistently high energy costs could keep inflation elevated for an extended period, compress corporate profits, weaken investment sentiment and intensify fiscal stress. At the same time, major global central banks are expected to remain cautious, with the possibility of further tightening financial conditions if inflationary pressures continue.

Moody’s highlighted that prolonged negotiations between the United States and Iran, combined with ongoing shipping disruptions and the threat of military escalation, continue to undermine the durability of the ceasefire. Against this unstable geopolitical backdrop, the global economy faces the risk of another major energy and food-price shock, particularly if transit movement through the Gulf region remains restricted.

The agency stated that the economic impact would largely depend on how long the Strait of Hormuz remains closed. India imports nearly 60 per cent of its liquefied petroleum gas requirements, and about 90 per cent of those supplies pass through the strategically critical Strait of Hormuz, which is currently shut.

Several Asian economies have begun diversifying their energy supply chains in response to the crisis. India has increased imports of Russian crude oil, while Japan and South Korea are gradually shifting towards energy supplies from the United States.

Moody’s also warned that economies across the world are facing a combination of common and country-specific challenges arising from the ongoing crisis. Although strategic petroleum reserves can provide temporary relief, the agency cautioned that physical shortages in global energy supplies could become increasingly severe within months if disruptions persist.

The report concluded that the Asia-Pacific region remains the most exposed to the unfolding crisis. While China has partial insulation because of its dependence on coal and renewable energy, India continues to face significant vulnerability due to its reliance on imported energy supplies and exposure to global fuel markets.