MUMBAI: Prime Minister Narendra Modi's "low political capital" will make it difficult for the new government to implement tough reforms, a Swiss brokerage said on Monday.
UBS Securities said if the government is able to implement tough reforms like land, farming, disinvestment, uniform civil code and one nation one election, the potential rate of growth could exceed 7.5 percent.
"Implementation of tough reforms could lift the potential growth rate to 7.5 per cent over the next five years from the current 6.5-7 per cent," its chief India economist Tanvi Gupta Jain told reporters here.
Referring to the ruling BJP's dependence on its National Democratic Alliance (NDA) allies in its third term, he said, "...tough reforms will be pushed forward as there is less political capital compared to the 2019 and 2014 elections." Government led by Prime Minister Narendra Modi.He said the government will continue reforms like boosting manufacturing, implementing already passed labor laws in the next 12-18 months, focusing on skill development and creating blue-collar jobs.
"We feel that the implementation of other tough reforms including land reforms, big increase in infrastructure spending, disinvestment, farm bill, uniform civil code, one nation one election will be challenging," he said.
Jain said the growth momentum is strong and he maintained his real GDP growth forecast for FY2025 at 7 percent.
He said next month's Union Budget is a key policy announcement to keep an eye on and said the new government will move on a fiscal consolidation path.
Jain said the fiscal deficit figure for FY2025 could be retained at 5.1 per cent or even kept at 5 per cent by the new government, pointing to the Rs 2.11 lakh crore dividend by the RBI as a comfort factor. Which will ensure that all previously announced plans are fulfilled.He said the government can use the relaxation offered by the RBI dividend to fund social sector spending, which will rise to 8-9 per cent in FY2025 against the interim Budget estimate of 6 per cent.
Higher social sector spending will be driven by a renewed focus on populism, Jain said, adding that he does not expect a major disinvestment move at least in FY20.
Jain said the brokerage expects no rate cuts from the RBI in 2024, adding that the economy is performing well and does not need any pressure from monetary policy.
However, a rate cut as shallow as 0.50 percent in 2025 could be possible if inflation eases, he said.
Jain said the contradiction between the slow 4 per cent growth in consumption and economic growth of over 8 per cent can be explained by the 'K-shaped' growth since Covid, where the affluent are driving the activity, he said That they expect rural consumption to improve in FY25.The brokerage said it expects the benchmark security yield to rise to 6.6 per cent by the end of FY2025 from the current 7 per cent once foreign inflows open up after inclusion in global bond indices and inflation eases.
As a result of RBI's curbs on unsecured loans and the high base, credit growth will slow to 13 per cent in FY2025, he said.
UBS Securities said if the government is able to implement tough reforms like land, farming, disinvestment, uniform civil code and one nation one election, the potential rate of growth could exceed 7.5 percent.
"Implementation of tough reforms could lift the potential growth rate to 7.5 per cent over the next five years from the current 6.5-7 per cent," its chief India economist Tanvi Gupta Jain told reporters here.
Referring to the ruling BJP's dependence on its National Democratic Alliance (NDA) allies in its third term, he said, "...tough reforms will be pushed forward as there is less political capital compared to the 2019 and 2014 elections." Government led by Prime Minister Narendra Modi.He said the government will continue reforms like boosting manufacturing, implementing already passed labor laws in the next 12-18 months, focusing on skill development and creating blue-collar jobs.
"We feel that the implementation of other tough reforms including land reforms, big increase in infrastructure spending, disinvestment, farm bill, uniform civil code, one nation one election will be challenging," he said.
Jain said the growth momentum is strong and he maintained his real GDP growth forecast for FY2025 at 7 percent.
He said next month's Union Budget is a key policy announcement to keep an eye on and said the new government will move on a fiscal consolidation path.
Jain said the fiscal deficit figure for FY2025 could be retained at 5.1 per cent or even kept at 5 per cent by the new government, pointing to the Rs 2.11 lakh crore dividend by the RBI as a comfort factor. Which will ensure that all previously announced plans are fulfilled.He said the government can use the relaxation offered by the RBI dividend to fund social sector spending, which will rise to 8-9 per cent in FY2025 against the interim Budget estimate of 6 per cent.
Higher social sector spending will be driven by a renewed focus on populism, Jain said, adding that he does not expect a major disinvestment move at least in FY20.
Jain said the brokerage expects no rate cuts from the RBI in 2024, adding that the economy is performing well and does not need any pressure from monetary policy.
However, a rate cut as shallow as 0.50 percent in 2025 could be possible if inflation eases, he said.
Jain said the contradiction between the slow 4 per cent growth in consumption and economic growth of over 8 per cent can be explained by the 'K-shaped' growth since Covid, where the affluent are driving the activity, he said That they expect rural consumption to improve in FY25.The brokerage said it expects the benchmark security yield to rise to 6.6 per cent by the end of FY2025 from the current 7 per cent once foreign inflows open up after inclusion in global bond indices and inflation eases.
As a result of RBI's curbs on unsecured loans and the high base, credit growth will slow to 13 per cent in FY2025, he said.
