Lok Sabha election results 2019 are out and the countdown for Budget 2019 India has begun! The outcome of general elections of the world’s largest democracy has ensured that Prime Minister-elect Narendra Modi will have a single party majority in the 17th Lok Sabha. With electoral politics taking a backseat, for now, the focus must shift to the economy and infrastructure building. International credit rating agency Fitch Ratings has predicted that the Lok Sabha election result 2019 may bolster “reform prospects” of the NDA government at the Centre with fiscal policy most likely to be in focus.
According to Fitch Ratings, the unprecedented results in favour of BJP would help reduce policy uncertainty in the near term and provide a cushion to Modi government 2.0 to “continue its economic reform efforts”. The full-fledged Budget 2019 for fiscal year culminating in March 2020 (FY20) is likely to be presented by July. It will be interesting to see whether PM Modi accelerates economic reforms and focuses on fiscal consolidation after “moderate fiscal slippages in recent years”, Fitch Ratings said in its report.
Fitch Ratings has listed out its expectations for Budget 2019 from the Modi government’s second term at the Centre.
1. Fitch Ratings has said that it would expect the newly elected Modi government to continue with institutional reforms.
2. The Modi government should strengthen the legal and judicial systems as this would help consolidate and enhance the gains from goods and services tax implementation and the Insolvency and Bankruptcy Code, according to Fitch Ratings.
3. Fitch Ratings has said the improved business sentiment in the country along with further reform implementation will only help increase productivity and enhance support growth. In its recent Global Economic Outlook in March, Fitch Ratings has forecast 6.8 per cent growth in FY20 and a more fruitful 7.1 per cent in FY21.
4. Fitch Ratings expressed hope that the central government would roll out more policy details in its first budget. In Budget 2019, the newly elected government should lay out “meaningful guidance” on the medium-term fiscal outlook.
5. Fitch Ratings stated that a weak fiscal position would constrain India’s sovereign rating, which was categorised as ‘BBB-‘/Stable by Fitch Ratings back in April. Fitch Ratings has reduced the central government’s debt to the 60 per cent of the GDP ceiling by FY25 from an estimated 68.8 per cent of GDP in FY19. However, to achieve this, the Modi government would require a significant deficit reduction of around 0.5 per cent of GDP annually, Fitch Ratings said.