In a positive development for the economy, Global Rating agency, Moody's Investors Service underscored that the landslide victory by the Bharatiya Janata Party (BJP) in elections is ‘credit positive’ for country’s sovereign profile and corporate sector. It further added that this strong mandate increases the possibility of a stable central government pursuing a shared economic agenda for addressing country’s macroeconomic challenges since intra-coalition differences around economic priorities in the past had derailed measures to improve India’s operating environment.
However, the rating agency sounded a word of caution on expecting any immediate change in economic situation as it highlighted that though the policy measures to revive the economy would emerge in the coming months, but growth, fiscal and inflation metrics were unlikely to improve any time soon. The agency said although market indicators have shifted rapidly in response to sentiment, economic trends will reverse more slowly, given that economic data still shows that growth remains weak and inflation high.
Additionally, it pointed that though India’s GDP growth rate was higher than that of several peer countries, even during its economic slowdown, its fiscal metrics, inflation levels and infrastructure for long had remained weaker than those of other ‘Baa’-rated countries.
Also, the rating agency averred that the extent to which these metrics improve would depend upon the measures which the government adopts to address country’s weak fiscal position, the regulatory conditions on investment and output and the lack of adequate social and physical infrastructure.
However, it did acknowledge the incremental portfolio capital flows into India this year on hopes of a BJP-led coalition forming the next government and pursuing policies conducive to investment and economic growth, which in turn led to rupee appreciating by 5% against the US dollar since the beginning of the year.
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