Day after trends from counting of votes on Tuesday threw up disappointing results for the BJP-led NDA in the Lok Sabha elections, rating agency Fitch in a note said that weakened majority for Indian Prime Minister Narendra Modi's alliance could pose challenges for the more ambitious elements of the government's reform agenda.
The statement comes after Fitch Ratings in March raised its forecast for India's economic growth to 7 per cent for this fiscal year started April 1 on the back of strong domestic demand and sustained level of business and consumer confidence.
Also read/watch - When Modi loses, Adani stocks fall: Rahul Gandhi as BJP falls short of majority
Fitch on India's economy
"It appears the BJP-led NDA is likely to form the next government, returning Prime Minister Modi for a third term, but with a weakened majority that could pose challenges for the more ambitious elements of the government's reform agenda," Fitch said.
As the BJP fell short of an outright majority and will need to rely more heavily on its coalition partners, "passing contentious reforms could prove more difficult, particularly around land and labour, which have recently been flagged as priorities by the BJP to boost India's manufacturing competitiveness," it said.
Fitch however expected policy continuity to persist despite a slimmer majority. It expected the government to retain its focus on capex push, ease of doing business measures, and gradual fiscal consolidation.
"We expect India's strong medium-term growth outlook to remain intact, underpinned by the government capex drive and improved corporate and bank balance sheets. But upsides to medium-term growth prospects are likely to be more modest if reforms prove more challenging to advance," it added.