Timely Policy Response Crucial to Manage Indian Economy’s Macroeconomic Stability: Moody’s

Timely policy responses to the crisis emanating from the war in West Asia will be crucial for the Indian economy to manage macroeconomic stability and credit flow, Moody’s said in a report on Tuesday.

The global rating agency warned that otherwise, sustained high energy prices may strain India’s trade balance, stoke inflation, and worsen the fiscal position.

It highlighted the country’s reliance on the Gulf region for crucial commodities like energy and fertilisers. Around 55 percent of crude oil and over 90 percent of LPG imports come from this region. Any disruption here directly impacts India.

However, the agency also pointed out the government’s continued focus on infrastructure spending and recently signed free trade agreements. These moves could help cushion the impact of the war on the Indian economy.

Moody’s has already pared India’s gross domestic product (GDP) growth forecast for FY27 to 6 percent from its earlier estimate of 6.8 percent.

Moody’s had warned that problems in LPG supply could lead to shortages for households, while rising fuel prices will increase transport costs.

This may also push up food prices because India depends on imported fertilisers.

While inflation is currently under control, Moody’s expects it to rise going forward. It has projected inflation at 4.8 percent in FY27, compared to 2.4 percent in FY26.

Higher oil, gas, and fertiliser prices will increase overall costs in the economy, making everyday goods more expensive for consumers.

Due to rising costs, people may spend less, which will slow down private consumption. At the same time, businesses may reduce investments because of higher input costs and uncertainty.

Moody’s said this could weaken industrial growth and reduce the pace of infrastructure and capital investments.

In March, the agency had said that India could be among the worst-hit economies in the region.

“India and China face sizeable damage given their dependence on oil and gas imports from Gulf economies caught up in the conflict,” the report had said.