The rating agency has not changed its baseline projection of 13.5% to 14% credit growth but said a prolonged war will have a broad base impact on the macro economy including the banking sector. It continues to expect GDP in the next fiscal year to print at 6.4% helped by tax reforms, stable monetary policy and conducive financial conditions.
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Amit Pandey, senior analyst, financial institutions group at Moody’s said the impact from the war would have large scale ramifications for the Indian economy but only if there is a prolonged conflict. “If it is a matter of a few weeks and Brent crude for example settles at $89 per barrel, then the impact will not be much. But it goes on longer and oil prices stay above $100 per barrel it will have ramifications not only on fuel prices but on a broad level because economy will slowdown and there will be an hit on demand which will impact even banks,” Pandey said.
In a report released last week Moody’s had said its baseline scenario assumes a short-lived conflict lasting a matter of weeks, with no major damage to key production facilities and infrastructure. The report had singled out India among the large Asian economies that rely on crude and LNG from the Middle East, with a high share of Middle Eastern crude among total oil imports.
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Costly energy imports would weaken the rupee, raise inflation, worsen the current account balance and complicate monetary policy as well as fiscal management if they lead to expanded subsidies to help offset the economic shock, the report said. India is among three countries including Japan and Korea which have a ‘very high’ structural exposure to oil price shock with crude imports 3.6% of GDP, Moody’s said.