According to Pranjul Bhandari, chief economist at HSBC, govt can opt for easy-to-undertake reforms such as public capex push and support for hightech and newly emerging sectors and still stick to the path of fiscal consolidation. However, hard reforms, which include farm, labour, and land reforms, as well as rationalisation of food and fertiliser subsidies, would be difficult.
“If new govt’s focus is on the easy-to-moderate reforms buckets, we believe medium-term annual growth could be on track to reach 6.5%. But if reforms in the moderate-to-hard bucket are done, growth could be 7.5% or more,” said Bhandari.
Tanvee Gupta Jain, economist with UBS, places the base case for govt to stick to a medi um-term fiscal consolidation roadmap but with a populist bias. “The higher-than-expected RBI dividend transfer to govt would create fiscal leeway to increase populist spending to support consumption for lower income strata such as cash transfers, higher rural spending, income tax rationalisation, affordable housing, while continuing its thrust to boost public capex,” she said.
Jain feels that the implementation of labour laws could still occur as these have already been cleared by both ho uses of Parliament. Govt has consolidated 29 central labour laws out of 44 existing central laws into four labour codes. “We think the next set of reforms in land and capital that markets were hoping for will likely disappoint as political capital is lower vis-a-vis 2019 and 2014 elections,” she added.
Christian de Guzman, senior VP with rating agency Moodys, expects policy continuity, especially with regard to govt’s focus on infrastructure. However, the lack of a majority could delay far-reaching economic and fiscal reforms, which could impede progress on fiscal consolidation. Rating agency Fitch also feels that passing contentious reforms could prove more difficult for new govt.
