Moody’s Ratings cuts India’s 2025 growth forecast to 6.3%

Moody's Ratings cuts India's growth forecast

India's economy is likely to grow slower at 6.3 percent in 2025 from 6.7 percent in the previous year, Moody’s Ratings said on May 6, flagging tensions with Pakistan.

The trimmed forecast comes just days after the International Monetary Fund (IMF) and the World Bank lowered India’s and the world’s growth estimates.

“Uncertainty surrounding global economic policies is likely to take a toll on consumer, business and financial activity,” the ratings agency said in its Global Macro Outlook’s May update.

Despite a pause and reduction in some tariffs, policy uncertainty and trade tensions, especially between the US and China, are likely to dampen global trade and investment with consequences across the G20, it said, referring to the intergovernmental forum of 19 countries, the European Union and the African Union.

The Indian economy is projected to do better at 6.5 percent in 2026.

Besides trade uncertainties, rising tensions are likely to weigh down growth, the global agency noted. “Geopolitical stresses are another potential downside risk to our baseline forecasts,” it said.

In recent days, tensions have flared up between India and Pakistan in South Asia and China and the Philippines in the South China Sea. These join unresolved wars in Russia and Ukraine as well as the conflict in the Middle East, the note said.

“Costs to investors and businesses are likely to rise as they factor for new geopolitical configurations when deciding where to invest, expand and/or source goods,” Moody’s Ratings said.

Tensions between India and Pakistan have heightened since the April 21 Pahalgam terrorist attack when 26 tourists were killed in one of the worst attacks in the Valley since 2000. Two of the terrorists involved in the strike have been identified as Pakistani citizens.

Moody’s, however, was optimistic on the price front, projecting inflation at 4 percent in 2025 and 4.3 percent in 2026.

“The Fed’s policy path is not as important a consideration for emerging market central banks as it was this time last year. Among other emerging market countries, we expect the Reserve Bank of India to lower rates further to support growth,” Moody’s said.

In its April review, the RBI’s monetary policy committee delivered its second consecutive rate cut of 25 basis points, bps the key repo rate down to 6 percent. Economists expect more cuts in the months ahead.

Moody’s forecast reflects the growing concerns over geopolitical uncertainties weighing down global growth.

In April, the IMF lowered India’s growth forecast to 6.2 percent for FY26 from 6.5 percent projected earlier. The World Bank expects India to grow at 6.3 percent in FY26, 0.4 percentage point lower from its earlier estimates.