Expect broad policy continuity with focus on capex: Ratings agencies

India will see a broad policy continuity with focus on capex push and gradual fiscal consolidation, however, reforms and fiscal metrics may prove to be a challenge, ratings agencies said Wednesday.

"Despite the slimmer majority, we do expect broad policy continuity to persist, with the government retaining its focus on its capex push, ease of doing business measures, and gradual fiscal consolidation," said Jeremy Zook, director and primary sovereign analyst for India, Fitch Ratings The election results, released Friday, threw a surprise with the ruling BJP falling short of the full majority mark of 272 and paving the way for formation of a minority coalition government.

"NDA's relatively slim margin of victory, as well as the BJP's loss of its outright majority in parliament, may delay more far-reaching economic and fiscal reforms that could impede progress on fiscal consolidation," said Christian de Guzman, Senior Vice President, Moody's Ratings. The government had set a fiscal deficit target of 5.1% of GDP for FY25 in the interim budget, with an intention to further lower it to 4.5% in the following year.


"The pace of India's fiscal consolidation post-pandemic has not outperformed other emerging markets in Asia-Pacific, and its fiscal and debt metrics remain weaker than Indonesia (Baa2 stable), the Philippines (Baa2 stable) and Thailand (Baa1 stable), as well as other Baa-rated peersglobally," Guzman said.

Fitch further noted that a coalition could also put a halt to the government's ambitious agenda. "As the BJP fell short of an outright majority and will need to rely more heavily on its coalition partners, passing contentious reforms could prove more difficult, particularly around land and labour, which have recently been flagged as priorities by the BJP to boost India's manufacturing competitiveness," Zook said.

Moody's expects India to average 7% growth over the next three years. Fitch and Moody's have both kept India's rating and outlook unchanged.