Nomura, an investment bank, has expressed confidence in India's economic fundamentals, stating they will remain robust despite political changes.
This comes after the BJP-led NDA retained power with a weaker mandate than expected, while the opposition INDIA bloc performed better than exit polls predicted.
"Our assessment is that India's economic fundamentals remain robust. Reforms in India have generally survived the test of politics, and we expect the government to continue the pace of governance and administrative reforms, leaving states to navigate the more challenging reforms around land and labor," Nomura commented.
The bank acknowledged that while there is high near-term uncertainty and a slightly different political outlook, trajectory of reforms, macroeconomic stability, and economic growth will stay consistent.
Nomura highlighted that the immediate focus would be on forming the government and negotiations among political allies and parties. They noted the possibility of new faces in the Cabinet and emphasized their attention would be on the upcoming Budget, likely in early July, to gauge policy direction.
The bank anticipates the new government's first 125-day agenda to prioritize digitalization, infrastructure, industrialization, and governance reforms. The election outcome might shift spending from capital expenditure to revenue expenditure, though macroeconomic prudence is expected to be maintained.
"We do not foresee any deviation from the interim budget target of 5.1 percent of GDP. However, if reflationary policies become politically necessary, this could slow fiscal consolidation," Nomura added.
They expect supply-side reforms to continue, while reforms in factor markets, such as labor and land, will remain challenging. No significant impact on monetary policy is anticipated.
The swearing-in ceremony for the new government is likely on June 9. The final election results showed the NDA winning 292 seats, the INDIA bloc securing 234 seats, and 17 seats going to 'others'.
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