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Bharatiya Janata Party’s “apparent landslide victory” is likely to improve business sentiment and outlook for private investment, Fitch Ratings said.
It said that from a credit rating perspective, Fitch would focus on the extent of the next government’s efforts to improve India’s weak fiscal finances. According to the trend, the BJP-led National Democratic Alliance will form the government at the Centre for the second successive term with absolute majority.
“The BJP’s apparent landslide victory marks an easing of political uncertainty and is likely to improve business sentiment and the outlook for private investment,” Fitch Ratings Director Asia-Pacific Thomas Rookmaaker said.
Although it expects the fiscal deficit to remain manageable in the next few years, Fitch said it has seen “little indication” so far that the government will pursue significant deficit reduction of the order needed to meet the general government debt ceiling of 60 percent of the GDP by March 2025 as mandated by the Fiscal Responsibility and Budget Management Act.
The global rating agency said it expects the government to remain reform-minded, as the BJP’s manifesto highlighted the aim to improve the business environment and governance standards, strengthen infrastructure and stimulate the manufacturing sector through a new industrial policy.
“Of particular importance from a credit perspective will be the extent of the next government’s efforts to improve India’s weak fiscal finances,” Rookmaaker said. “Fiscal consolidation stalled under the BJP in recent years, and its campaign promise to support farmers’ incomes has added to spending pressure.”
Last month, Fitch retained India’s sovereign rating at ‘BBB-‘, the lowest investment grade, with stable outlook, saying a weak fiscal position continues to constrain its rating.
It was the 13th year in a row that global rating agency Fitch rated India at ‘BBB’. It had last upgraded India’s sovereign rating from ‘BB+’ to ‘BBB-‘ with a stable outlook on Aug. 1, 2006.
Rookmaaker said another area of potential reform is to enhance the efficiency and effectiveness of government administration, and the legal and judiciary systems. “This would allow the government to solidify reforms of its first term, for instance by further enlarging the tax base and improving the credit culture.”
Earlier in the day, Moody’s said its credit view on India will depend on policies of the new government and expressed hope that the country would continue with its fiscal consolidation plan.
“Any credit implications of the outcome of India’s general election will be determined by the policies adopted by the government in the next few years. These policies are yet to be formulated,” Moody’s Investors Service Vice-President Sovereign Risk Group William Foster said.
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Source: Global Economy