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NEW DELHI: A day after the 18th Lok Sabha elections delivered a surprising outcome, Fitch Ratings on Wednesday reinforced its ‘positive’ outlook on India‘s medium-term economic growth.
Once again, this outlook has been supported by substantial government capital expenditure and strengthened corporate and bank balance sheets.
The global credit rating agency said that the BJP-led NDA is likely to form the next government.
“We expect India’s strong medium-term growth outlook to remain intact, underpinned by the government capex drive and improved corporate and bank balance sheets,” said Fitch’s Director and Primary Sovereign analyst for India, Jeremy Zook.
It is to be noted that last week, government data showed that the Modi-led Centre had utilised Rs 9,48,506 crore as part of its capex in FY24 as against the revised estimate (RE) of Rs 9,49,555 crore, which accounts for 99.9 per cent of the RE.
However, Zook also cautioned that the potential for further growth could be constrained if forthcoming reforms prove difficult or could hinder their pace and effectiveness.
Also Read: A weaker Modi government will slow India’s fiscal tightening, Moody’s says
One reason why analysts have turned apprehensive about reforms in India is that the ruling Bharatiya Janata Party has failed to reach the required majority of 272 in the 543-seat strong Lok Sabha. However, the NDA has managed to eke out close to 290 seats, giving the Modi government a third consecutive term at the Centre.
India also reported a robust gross domestic product (GDP) growth at 7.8 per cent YoY in Q4FY24, with the new estimates of the overall growth rate of FY24 standing at 8.2 per cent.
However, the narrative among investors and manufacturers seems to have changed with the BJP not securing a majority on its own.
Challenges await?
As India navigates its post-election landscape and while it is certain that Prime Minister Narendra Modi will return to office for a third term, marked by “changed circumstances”, it may make the implementation of critical reforms challenging, a PTI report quoted brokerage firm Emkay Global.
Adding to the misery, the Reserve Bank of India (RBI) had released draft guidelines instructing Indian lenders to boost their provisioning for infrastructure projects that are currently under construction and to rigorously monitor any signs of emerging stress.
This may dampen the spirits of India’s capex momentum, as a higher provisioning rate could increase interest rates.
Moreover, markets also faced the brunt of the BJP not having a clear mandate with the investors dumping shares of manufacturing and infrastructure companies on Tuesday fearing that the new coalition government led by the BJP could slow down capex spending.
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