Moody’s Provides Outlook on India’s Economic Resilience Despite Regional Instability
Global ratings agency Moody’s has assessed that India’s macroeconomic conditions remain stable even in the face of rising tensions with Pakistan following the deadly terror attack in Pahalgam on April 22, 2025. In its latest statement, Moody’s indicated that while India’s economy is expected to maintain stability, heightened tensions could weigh on fiscal consolidation and defence spending. However, the agency does not foresee significant disruptions to India’s economic activity stemming from the localized conflict with Pakistan, given the limited economic interdependencies between the two nations.
Highlights:
Moody’s assesses India’s macro conditions as stable despite rising tensions.
Terror attack in Pahalgam prompts retaliatory measures and escalates regional instability.
India’s minimal trade with Pakistan reduces the risk of economic disruption.
Economic Impacts on Pakistan Amid Rising India-Pakistan Tensions
Moody’s also highlighted that sustained escalation in tensions between India and Pakistan could have severe consequences for Pakistan’s economic stability. According to the ratings agency, rising tensions are likely to hinder Pakistan’s economic growth, affecting its fiscal consolidation efforts and delaying its progress towards macroeconomic stability. Moody’s noted that Pakistan’s foreign-exchange reserves, while improving, are still insufficient to meet its external debt obligations over the coming years. The potential for disrupted trade, heightened military spending, and a reduction in external financing access could further strain Pakistan’s economy, making it vulnerable to further volatility.
Highlights:
Tensions with India could undermine Pakistan’s fiscal consolidation and economic growth.
Pakistan’s foreign-exchange reserves insufficient to meet external debt needs in the near future.
Limited access to external financing could further pressure Pakistan’s economic outlook.
India’s Economic Growth Forecasted to Remain Stable, Despite Increased Defence Spending
While Moody’s acknowledged the external challenges posed by the rising India-Pakistan tensions, it emphasized that India’s macroeconomic outlook remains relatively secure. The agency pointed out that India is experiencing moderating but still robust growth, supported by strong public investment and healthy private consumption. Furthermore, the country’s trade relations with Pakistan are minimal, accounting for less than 0.5% of total exports in 2024, which limits the direct economic impact of the ongoing conflict. However, Moody’s cautioned that increased defence spending could create fiscal pressures and slow India’s progress in fiscal consolidation, affecting long-term economic strength.
Highlights:
India’s macroeconomic stability underpinned by strong public investment and private consumption.
Minimal economic ties with Pakistan reduce risks of significant disruption.
Increased defence spending may strain India’s fiscal consolidation and long-term financial health.
Moody’s Geopolitical Risk Assessment: Periodic Flare-Ups, Not Full-Scale Conflict
In its risk assessment, Moody’s expressed the view that while India and Pakistan’s geopolitical tensions are persistent, they are not expected to lead to full-scale military conflict. The agency anticipates that both countries will experience periodic flare-ups, as has been the case throughout their post-independence history. These flare-ups, which have historically resulted in limited military responses, are not anticipated to escalate into broad-based warfare. The geopolitical risk assessment assumes continued tensions but does not foresee them derailing India’s economic stability significantly.
Highlights:
Moody’s expects periodic India-Pakistan flare-ups, not a full-scale military conflict.
Geopolitical tensions are seen as persistent but manageable without major disruption.
Limited military responses expected in case of flare-ups, not escalating to war.
