Moody’s sees slower growth for India at 6% in 2026 amid surge in energy prices, geopolitical tensions

12 May 2026 Evaluate

Moody's Ratings, in its Global Macro Outlook May update, has cut India’s Gross Domestic Product (GDP) growth forecast for 2026 by 0.8 percentage points to 6 per cent, following growth of 7.5 per cent in 2025. The downgrade reflects subdued private consumption, weaker capital formation, and slowing industrial activity amid rising energy costs. The agency noted that over the next six months, the impact of higher energy prices and fuel- and fertilizer-related shortages is likely to vary significantly across countries, depending on their level of exposure and economic resilience. It also cautioned that the global economic outlook remains highly uncertain due to the prolonged confrontation and fragile ceasefire between the US and Iran.

The ratings agency also trimmed India’s GDP growth projection for 2027 by 0.5 percentage points to 6 per cent, pointing to lingering economic headwinds. The agency assumes conditions to gradually improve as shipping flows normalize and energy supplies stabilize, supporting a recovery in core economic activity. It also warned that India remains ‘particularly vulnerable’ to high oil prices, importing nearly 90 per cent of its crude and LNG requirements.

It said India’s position as a net grain producer could boost agricultural exports in the near term, but rising fuel and fertilizer prices may strain government finances and limit planned capital spending. Coal still powers around 70 per cent of the country’s electricity, though solar, wind, and hydro continue to grow. It warned that persistently high energy costs could keep inflation elevated, compress profits, weaken investment, and pressure public finances, even as major central banks remain on hold but ready to tighten if needed.

It cautioned that ongoing US-Iran negotiations, shipping blockades, and the threat of military escalation could undermine the fragile truce. This instability raises the risk of another energy and food-price shock, especially if Gulf transit routes remain restricted. It noted that the impact on global growth and inflation will largely depend on the duration of any closure of the Strait of Hormuz.

India depends on imports for 60 per cent of its LPG, with nearly 90 per cent passing through the now-closed Strait of Hormuz. To reduce risk, several Asian economies are diversifying their oil supply, with India turning to Russian crude and Japan and South Korea gradually increasing US imports. It cautioned that while strategic reserves offer short-term relief, global energy shortages could intensify within months. The Asia-Pacific region is the most exposed, with China partly shielded by coal and renewables, while India remains highly vulnerable.

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