A coalition government at the Centre may be forced to slow down decisions and dilute some key initiatives, Moody’s Analytics said on Monday. However, the agency feels that Indian growth rate would be higher. At the same time, S&P Global has retained GDP forecast at 6.8 per cent.
Reports of these agencies have been made public on a day when the reconstituted Lok Sabha met for the first time post general elections. Poll results gave 293 seats to the BJP-led National Democratic Alliance, while Congress-led opposition alliance, INDI got 234 seats. The election was held to elect 543 members and majority mark is 272. BJP, on its own, won 240 seats which is lower than previous two elections (282 and 303 in 2014 and 2019, respectively).
Taking note of the BJP not securing a majority on its own, Moody’s Analytics said the results from the general elections have altered its outlook for the Indian economy. “The loss of seats by the ruling Bharatiya Janata Party has left it, and Prime Minister Narendra Modi, having to navigate coalition politics for the first time in more than a decade. This could be a good thing,” the firm said.
Also read: India’s current account balance records surplus in Q4 FY24 after ten quarters
Explaining its argument, the agency said that coalition partners will gain influence and leverage in policy decisions, allowing for a more inclusive approach to governance. “The BJP will need to use the tools of negotiation and compromise to maintain a cohesive government. This could slow decision-making and potentially dilute some of the party’s key policy initiatives,” it said. Further, it mentioned that BJP’s skill in forging new alliances and addressing longstanding challenges such as inflation, high unemployment, and socio-economic disparities will determine India’s growth trajectory for the next five years, if not more.
Talking about growth in 2024, the agency said: “India has shown some improvement thanks to a string of solid GDP prints. Indian GDP is now about 3.5 per cent below pre-pandemic trend; a year ago it was closer to 7 per cent.” Overall, conditions within Asia-Pacific region vary widely. “India, the Philippines, Vietnam, and Indonesia will see real GDP growth of more than 5 per cent this year, with China slightly behind at 4.9 per cent,” the agency said.
S&P Global
Meanwhile, S&P Global in its ‘Economic Outlook Asia-Pacific Q3 2024’ retained India growth forecast at 6.8 per cent for current fiscal (2024-25 or FY25) and 6.9 per cent for next fiscal (2025-26 or4 FY26). “India‘s economic growth continues to surprise on the upside. GDP growth for fiscal 2024 was revised up to 8.2 per cent. We expect growth to moderate to 6.8 per cent this fiscal year, with high interest rates and lower fiscal spur tempering demand in the non-agricultural sectors,” it said.
Also read: FPI flow turnaround in July-Dec 2024 likely: Jefferies
Talking about headline inflation, the agency said that while Indian headline inflation has remained elevated this year, this is solely because of high food inflation – core inflation is significantly lower. Retail inflation based on Consumer Price Index (CPI) slipped to 4.75 per cent in May from 4.83 per cent of April. However, food inflation remained stagnant at 8.7 per cent.