Is India Heading for an Economic Shock? Moody’s Flags Big Risks

The ongoing West Asia conflict could pose a serious threat to India’s economic growth, with rising oil prices, a weakening rupee, and inflationary pressure creating what experts describe as a “perfect storm” for the economy.

According to a recent outlook by Moody’s, India could be among the worst-affected economies in the Asia-Pacific region due to its heavy dependence on imported energy, especially oil and gas from Gulf nations impacted by the conflict.

Why Is India More Vulnerable to the Crisis?

The report highlights that India’s reliance on energy imports makes it particularly sensitive to global price shocks. If crude oil prices remain high, India could face up to a 4% decline in production from its expected growth trajectory.

Moody’s also noted that countries like India, South Korea, and China are likely to bear the brunt of the crisis due to their dependence on energy imports. Rising oil prices could lead to higher inflation, widening trade deficits, and reduced consumer spending.

Inflation, Rupee Pressure and Growth Risks

The report warns that increasing energy costs may push inflation higher, putting pressure on household budgets and slowing down economic activity. A depreciating rupee could further increase the cost of imports, worsening the situation.

Growth in the Asia-Pacific region is already expected to slow to 4% in 2026 from 4.3% in 2025, with further moderation likely. For India, the risk is more pronounced compared to developed economies that have stronger strategic reserves.

India Still Among Fastest Growing Economies

Despite the risks, India is expected to remain the fastest-growing major economy globally. Moody’s has projected India’s growth at 7.5% in 2026, slightly lower than 7.8% in the previous year, with further moderation to around 6.5% in 2027.

However, the report cautions that a prolonged conflict could significantly impact this growth outlook if energy prices remain elevated for a longer period.

Government Response and Preparedness

Prime Minister Narendra Modi has already acknowledged the risks posed by the West Asia conflict, stating that the region is crucial for India’s trade and energy supply.

He assured that the government is taking steps to ensure uninterrupted supply of essential commodities like fuel and fertilisers and is closely monitoring the situation to minimise economic impact.

The evolving crisis has raised concerns among policymakers and experts, as the global situation continues to remain uncertain and volatile.