New Delhi [India], June 7 (ANI): Fitch Ratings projects that the election losses will not prompt major policy shifts. Instead, the upcoming budget in July is likely to offer clearer insights into the government’s economic reform strategies and fiscal objectives for the next five years.
India’s recent election results signal the National Democratic Alliance (NDA) will retain power, though with a narrower majority. The Bharatiya Janata Party (BJP), the dominant force within the NDA, experienced a significant dip in support, resulting in the coalition’s reduced mandate.
According to Fitch Ratings, this outcome is expected to maintain broad policy continuity but poses challenges for advancing ambitious reforms due to the coalition dynamics and a weakened mandate.
The past decade of NDA governance saw mixed outcomes on economic reforms. Significant achievements included the implementation of the Goods and Services Tax and the Bankruptcy Code in 2016.
Additionally, there was a substantial increase in public infrastructure investment, propelling India to be one of the fastest-growing major economies globally.
The country’s real GDP growth hit 8.2 per cent for the fiscal year ending in March 2024 (FY24). Fitch forecasts robust growth at 7 per cent for FY25.
Fitch expects India’s medium-term growth to hover around a trend estimate of 6.2 per cent through FY28, despite the slimmer majority.
Continued public investment in infrastructure, ongoing digitalization, and improved bank and corporate balance sheets relative to the pre-pandemic period are likely to support a strong outlook for private investment.
The Production-Linked Incentives scheme, which aims to boost foreign direct investment in sectors like electronics, is expected to remain a key policy tool.
Nevertheless, the pace of private investment has not yet seen significant acceleration, posing a risk to the economic outlook.
The new government is likely to continue pursuing major reforms in land and labour laws to strengthen India’s manufacturing sector.
However, these reforms have historically faced significant resistance, and the weakened mandate will make their passage even more challenging.
Some progress may still occur at the state level, where local governments might push forward with these reforms independently. Judicial reforms to reduce costs and expedite court case resolutions also have potential under the new administration.
India’s fiscal health remains a critical area of concern. Weaker fiscal metrics compared to peers have constrained India’s rating, which Fitch affirmed at ‘BBB-‘ with a Stable Outlook in January 2024.
The new government’s capacity to tackle high fiscal deficits and debt reduction will be pivotal for maintaining this rating in the coming years.
Gradual fiscal consolidation has been a consistent focus, with the FY24 budget deficit reported at 5.6 per cent of GDP, below the revised estimate of 5.8 per cent and in line with Fitch’s projections.
The 5.1 per cent deficit target for FY25 appears achievable, and the goal of reducing the deficit to 4.5 per cent by FY26 seems within reach, though the recent election results may heighten the risk of increased social spending or deviations from capital expenditure commitments. (ANI)
Disclaimer: This story is auto-generated from a syndicated feed of ANI; only the image & headline may have been reworked by News Services Division of World News Network Inc Ltd and Palghar News and Pune News and World News
HINDI, MARATHI, GUJARATI, TAMIL, TELUGU, BENGALI, KANNADA, ORIYA, PUNJABI, URDU, MALAYALAM
For more details and packages
