New Delhi: The BJP-led National Democratic Alliance's (NDA) slim majority in the Lok Sabha could delay more far-reaching economic and fiscal reforms, hampering progress on fiscal consolidation, Moody's Ratings said on Wednesday.
The NDA winning majority in the general elections will give Narendra Modi a historic third term as the Prime Minister of India.
“We expect policy continuity, particularly with respect to budgetary emphasis on infrastructure spending and boosting domestic manufacturing, to support strong economic growth.
"However, the NDA's relatively small margin of victory, coupled with the BJP's loss of an absolute majority in Parliament, could delay far-reaching economic and fiscal reforms, which could hamper progress on fiscal consolidation," Moody's said in a note. Is."
India's fiscal results will remain weak compared to BA-rated peers, even though the final budget to be released in the next few weeks for the fiscal year ending March 2025 (FY 2024-25) should provide some signals on India's fiscal policy. Is.It says that the tenure of the incoming government will be till 2029.
In fiscal 2023-24, India's real GDP expanded to 8.2 percent from 7.0 percent last year, driven by gains in gross fixed capital formation as the government's infrastructure program further accelerated, even as private consumption remained subdued. doing.
“Our assessment of India's economic strength assumes real GDP growth of around 7 per cent over the three-year period between FY 2023-24 to 2025-26, with potential growth over the medium term as a result of improvements in productivity and growth "The emphasis is on infrastructure development and digitalisation," Moody's said.
The rating agency said that while it estimates India will grow faster than all other economies in the G20 through fiscal 2025-26, the near-term economic momentum masks structural weaknesses that pose risks to long-term potential growth. Is."High levels of youth unemployment across all sectors and weakness in productivity growth in the sovereign's large agricultural sector are hampering its growth potential," it said. "While we expect the incoming government to focus its attention on fiscal consolidation, material improvement in its debt ratio and interest service is yet to materialize."
The central government deficit is likely to decline for three consecutive years, having reached a trough in fiscal year 2020-21; If the planned deficit of about 5 per cent of GDP announced in the interim budget for financial year 2024-25 is achieved, it will be well within the government's goal of achieving a deficit of 4.5 per cent of GDP by financial year 2025-26. Will achieve the target.
“However, the pace of India's fiscal consolidation post-pandemic has not outperformed other emerging markets in Asia-Pacific, and its fiscal and debt metrics lag behind Indonesia (Baa2 stable), Philippines (Baa2 stable) and Thailand (Baa 1 stable), as well as other BA-rated peers globally."Furthermore, India's fiscal metrics, whether aggregated at the central government or general government level, remain worse than before the pandemic, when India's rating was higher at Baa2," it said.
The NDA winning majority in the general elections will give Narendra Modi a historic third term as the Prime Minister of India.
“We expect policy continuity, particularly with respect to budgetary emphasis on infrastructure spending and boosting domestic manufacturing, to support strong economic growth.
"However, the NDA's relatively small margin of victory, coupled with the BJP's loss of an absolute majority in Parliament, could delay far-reaching economic and fiscal reforms, which could hamper progress on fiscal consolidation," Moody's said in a note. Is."
India's fiscal results will remain weak compared to BA-rated peers, even though the final budget to be released in the next few weeks for the fiscal year ending March 2025 (FY 2024-25) should provide some signals on India's fiscal policy. Is.It says that the tenure of the incoming government will be till 2029.
In fiscal 2023-24, India's real GDP expanded to 8.2 percent from 7.0 percent last year, driven by gains in gross fixed capital formation as the government's infrastructure program further accelerated, even as private consumption remained subdued. doing.
“Our assessment of India's economic strength assumes real GDP growth of around 7 per cent over the three-year period between FY 2023-24 to 2025-26, with potential growth over the medium term as a result of improvements in productivity and growth "The emphasis is on infrastructure development and digitalisation," Moody's said.
The rating agency said that while it estimates India will grow faster than all other economies in the G20 through fiscal 2025-26, the near-term economic momentum masks structural weaknesses that pose risks to long-term potential growth. Is."High levels of youth unemployment across all sectors and weakness in productivity growth in the sovereign's large agricultural sector are hampering its growth potential," it said. "While we expect the incoming government to focus its attention on fiscal consolidation, material improvement in its debt ratio and interest service is yet to materialize."
The central government deficit is likely to decline for three consecutive years, having reached a trough in fiscal year 2020-21; If the planned deficit of about 5 per cent of GDP announced in the interim budget for financial year 2024-25 is achieved, it will be well within the government's goal of achieving a deficit of 4.5 per cent of GDP by financial year 2025-26. Will achieve the target.
“However, the pace of India's fiscal consolidation post-pandemic has not outperformed other emerging markets in Asia-Pacific, and its fiscal and debt metrics lag behind Indonesia (Baa2 stable), Philippines (Baa2 stable) and Thailand (Baa 1 stable), as well as other BA-rated peers globally."Furthermore, India's fiscal metrics, whether aggregated at the central government or general government level, remain worse than before the pandemic, when India's rating was higher at Baa2," it said.
