PM Modi's smaller mandate can slow India's fiscal tightening: Moody's analyst
With Prime Minister Narendra Modi-led National Democratic Alliance getting a smaller mandate in the recently concluded Lok Sabha elections, reforms that could have potentially facilitated aggressive fiscal consolidation might face obstruction, an analyst at Moody's Ratings said on Wednesday.
Modi's Bharatiya Janata Party (BJP) won 240 seats on its own, which is 32 short of the halfway mark in the 543-member decision-making lower house. The BJP will have to bank on the National Democratic Alliance (NDA) to form a government with a total of 293 seats.
"It looks like the prospects for even more aggressive consolidation are not as bright as they were prior to the election results," Christian de Guzman, senior vice president, sovereign risk group, told Reuters in an interview.
"I still think that the prospects for consolidation will remain intact, and they will retain a level of fiscal discipline."
India's benchmark 10-year bond yield saw its biggest surge in eight months following the poll outcome.
India is eyeing to narrow its fiscal deficit to 4.50 percent of gross domestic product by the end of 2025/26, from the 5.1 percent projected in the current year ending in March 2025.
The smaller mandate for Modi raises risks of more populist spending to consolidate political support, Guzman said.
The July budget would account for the Centre's plans with the Reserve Bank of India's record 2.11 trillion rupees ($25.28 billion) worth of surplus transfer.
It could use it to further consolidate the fiscal position or to garner political support, Guzman said. "A shaky political outcome perhaps suggests higher odds for the latter."
S&P Global Ratings raised India's sovereign rating outlook to 'positive' from 'stable' last week saying the country's robust economic expansion was having a constructive impact on its credit metrics.
On Wednesday, Fitch said the weakened majority for Modi's alliance could pose challenges for the more ambitious elements of the government's reform agenda.
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