The agency has said the war will raise inflation in the South Asian nation, while cutting its forecast to 6% in 2026-27

Rating agency Moody's has slashed India's GDP projection for the 2026-27 fiscal year to 6% from 6.8%, citing the ongoing war in Iran.

In its latest forecast, the agency said the Middle East conflict will moderate growth momentum and raise inflation risks in the South Asian nation.

The conflict would lead to near-term household shortages, especially of cooking gas, higher fuel, and transport costs, it said on Sunday. The agency added that it saw a spillover impact on food inflation due to New Delhi's reliance on imported fertilizers.

The Middle East accounts for nearly 55% of crude oil imports and over 90% of liquified petroleum gas (LPG) supplies to India. New Delhi has resumed crude oil purchases from Iran for the first time in seven years, as the Middle East conflict disrupted global energy flows.

"While inflation remains contained for now, geopolitical risks have tilted the inflation outlook to the upside," Moody's said in its credit opinion report on India.

The federal government had in Januaryprojectedreal GDP growth for the 2026-27 fiscal year at 6.8%-7.2%.

Moody's projected inflation to average 4.8% in FY27, up from 2.4% a year ago. The agency said that with inflation risks re-emerging and growth remaining robust, the Reserve Bank of India (RBI) is likely to hold the policy rates or even raise them gradually in fiscal 2026-27, "depending on the duration of geopolitical tensions and their pass-through to food and fuel prices."

The RBI Monetary Policy Committee began its three-day meeting on Monday to review interest rates and the inflation outlook. The central bank has slashed interest rates by a cumulative 125 basis points since February 2025.

Moody's also cited subdued private consumption, softer industrial activity, elevated prices, and higher input costs as factors that underscore its revised projections.

(RT.com)