A report titled, 'India Outlook: Searching for Potential,' by Moody's Analytics has said that the controversial comments by Bharatiya Janata Party members could stall reforms as it lacks majority in the Rajya Sabha. The report also said the Prime Minister needs to keep his members in check or risk losing domestic and global credibility. Moody's report brought into focus the fading sentiments in the financial markets, also highlighting the need for better political outcomes to help India achieve its reforms goals.
Faraz Syed, an economist with Moody's Analytics, said, “Looking beyond the business cycle, the government's reform agenda needs attention to achieve long-term growth. Prime Minister Narendra Modi's right-leaning Bharatiya Janata Party does not have a majority in the upper house to pass crucial reforms and has been met with an obstructionist opposition.” The report said, “But in recent times, the government also hasn't helped itself, with controversial comments from various BJP members. While Modi has largely distance himself from the nationalist gibes, the belligerent provocation of various Indian minorities has raised ethnic tensions. Along with a poddible increase in violence, the government will face stiffer opposition in the upper house as debate turns away from economic policy. Modi must keep his members in check or risk losing domestic and global credibility.”
The need for the government to go ahead with the reforms gains urgency considering that investors' optimism on the country's economic prospects has been waning. “Net financial flows into equity were around US$16 billion in 2014. However, they are unlikely to reach those highs this year. The same can be said about financial flows into India's debt market,” the report said.
“The precipitous fall in exports from 2015 is expected to continue in 2016. The newfound stability in India's current account balance could come under renewed stress if global growth slows more. So far, lower oil prices have buttressed the trade balance. But a rebound in prices if oil supply rebalances could see the trade balance deteriorate.”
