“Although we continue to expect India to grow faster than all other G-20 economies, as well as similarly rated emerging market sovereigns, risks remain,” it said.
“Looking ahead, in the absence of an enduring resolution to the conflict in the Middle East, elevated energy prices could push annual average inflation beyond our projection of 4.8 per cent for fiscal 2026-27, which is already significantly higher than the 2.4 per cent outturn in fiscal 2025-26, while El Niño-related disruptions could increase food price pressures, weighing on private consumption and economic activity,” the agency said.
While the increased diversification of India’s crude import sources, sizeable foreign exchange reserves and strong domestic demand provide important buffers, higher energy and fertilizer import costs, softer external demand and weaker remittance inflows from the Middle East could widen the current account deficit and weigh on growth momentum more broadly, Moody’s said.
The fiscal policy response to the Middle East shock has been muted, reflecting the government’s commitment to its target of reducing the central government deficit to 4.3 per cent of GDP in fiscal 2026-27 from 4.4 per cent the previous year, the agency noted.
Nevertheless, notwithstanding adjustments to retail fuel prices since May, higher global energy prices could further increase subsidy outlays and raise pressure for additional support measures, while rising defense expenditure and sustained infrastructure investment will constrain the pace of fiscal consolidation, it said.
