India’s unemployment rate is expected to rise slightly to 7% in 2026, while inflation is projected to increase to 4.5%, according to the latest Asia-Pacific outlook released by Moody’s Analytics. Both figures are expected to be the highest among Asia-Pacific (APAC) economies.
Unemployment Outlook
Moody’s projects India’s unemployment rate to increase from 6.9% in 2025 to 7% in 2026. The agency expects the rate to remain unchanged at 7% through 2027 and 2028, indicating persistent stress in the labour market.
Among APAC peers in 2026:
- China and New Zealand: 5.4%
- Philippines: 4.7%
- India: 7% (highest in the region)
Inflation Set to Rise Sharply
India’s inflation is expected to climb sharply to 4.5% in 2026, from 2.2% in 2025. This would again place India at the top among APAC countries in terms of inflation.
Inflation is projected to:
- Peak at 4.5% in 2026
- Ease slightly to 4.1% by 2028
Key Reasons Behind Rising Inflation
Moody’s highlighted multiple global and regional factors contributing to inflationary pressure:
- Conflict in the Middle East, pushing up commodity prices
- Elevated energy costs, increasing transportation and production expenses
- Ongoing uncertainty around US tariff policies
The report noted that the situation mirrors earlier global supply shocks seen during the COVID-19 pandemic and the Russia–Ukraine conflict.
Emerging Price Pressures in India
Retail inflation in India, which remained subdued for most of 2025, has begun rising:
- October 2025: ~0.25%
- January 2026: 2.75%
- March 2026: 3.4%
Rising fuel and logistics costs are already feeding into price levels, according to the report.
Risk of Food Inflation
Moody’s warned that if geopolitical tensions persist, shortages of chemicals and fertilisers could emerge, leading to higher food prices. This poses a significant risk for APAC economies, where food accounts for a large share of household consumption and carries high weight in Consumer Price Index (CPI) baskets.
Growth Outlook for Asia-Pacific
Economic growth across the APAC region is projected to slow:
- 2025: 4.3%
- 2026: 3.8%
- 2027: 3.6%
Weak domestic demand has so far helped contain inflation, but rising commodity prices could reverse this trend even as growth momentum weakens.
Exports and AI Boom Losing Steam
Exports had supported growth in recent years due to:
- Front-loading ahead of tariff hikes
- Strong global demand for AI-driven electronics and semiconductors
However, Moody’s cautioned that this momentum may slow due to:
- Rising tariffs
- Global market volatility
- Higher prices and hardware shortages
The agency noted that the AI-led expansion may be approaching a pause, as electronics prices rise and supply constraints disrupt markets.
Conclusion
India is likely to face a challenging macroeconomic environment in 2026, marked by higher unemployment and rising inflation. Global geopolitical tensions, elevated energy prices and slowing trade growth could further strain economic stability, underscoring the need for careful policy management in the coming years.