New Delhi: The ruling Bharatiya Janata Party’s (BJP) electoral wins in the just concluded assembly elections in five states show broad-based popular support for the Central government’s economic and institutional reform agenda which is a credit positive for the sovereign, rating agency Moody’s Investor Service said on Wednesday.
Moody’s has currently assigned the lowest investment grade for India with a positive outlook.
In the politically crucial state of Uttar Pradesh, the party secured 312 of 403 state legislative assembly seats leading to a landslide victory which will boost its seats in the upper house of Parliament. Currently, the National Democratic Alliance, led by the BJP and its allies, holds about 30% of the total seats in the upper house. “Next year, 69 seats in the upper house, including 10 from Uttar Pradesh and one from Uttarkhand, will come up for reelection. If the BJP-led coalition increases its seat tally to or closer to an outright majority, passage and implementation of additional reforms will be easier,” Moody’s said.
“The ruling party will not feel the benefit of its electoral gains immediately, because the changes in the upper house will only occur next year, when some members retire,” said William Foster, a Moody’s vice-president and senior credit officer.
In addition, the rating agency said, collaboration between the Central government and new BJP-led states could improve, partially circumventing impediments to reform at the federal level on politically sensitive issues like land and labour reform. “This would support state-led reform momentum—BJP-led states like Gujarat and Rajasthan have already amended some land and labour laws,” it added.
Last month, Moody’s said the economic disruption caused by demonetisation will be short term in nature and that in the medium term note ban will be credit positive for the country.
Prime Minister Narendra Modi on 8 November invalidated high-value currency notes as part of his government’s fight against black money. The currency crunch that followed demonetisation impacted consumption, driving down economic growth.
The economy grew at a healthy 7% in the third quarter (October-December) of 2016-17 against 7.4% in the second quarter (July-September). Analysts polled by Reuters had expected a 6.4% growth rate in the quarter to December.