Moody's reaction on Modi 3.0, the firm said - major reforms may be delayed

The Lok Sabha Election 2024 results are now public. The BJP-led National Democratic Alliance (NDA) received a minority in the Lok Sabha results. The rating agency Moody's responded to the Lok Sabha election results.

The rating agency stated that the nation's fiscal and economic reforms might be postponed as a result of the BJP's failure to secure an absolute majority. Additionally, this could impede the fiscal consolidation process.

In the event that the NDA secures a majority in the general elections, Narendra Modi will serve an unprecedented third term as prime minister of India.

According to a note from Moody's, "We expect strong economic growth to be supported by policy continuity, particularly about the budgetary emphasis on infrastructure spending and boosting domestic manufacturing."

However, the relatively narrow margin of the NDA's victory, as well as 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.

India's fiscal outcomes will remain weaker than BAA-rated peers. The final budget (Budget 2024) for the financial year 2024-25 will be released in the next few weeks. The new government will have a term till 2029.

India's real GDP grew to 8.2 percent in FY 2023-24 from 7.0 percent in the previous year. The government was driven by gains in gross fixed capital formation. Infrastructure growth accelerated in fiscal year 2023-24, while private consumption remained subdued.

Moody's said that our assessment of India's economic strength assumes real GDP growth of about 7 percent over the three-year period between fiscal years 2023-24 and 2025-26 while taking into account potential growth in the medium term as a result of productivity improvements and potential growth.

The government is emphasizing infrastructure development and digitalization to accelerate India's economy.

The rating agency estimated that India will grow faster than all other economies in the G20 by fiscal year 2025-26. Moody's said that India's fiscal metrics, whether aggregated at the central government or general government level, will remain worse than before the pandemic when India's rating was higher at Baa2.