Nomura India recently conducted a survey among institutional investors. The survey suggested that if the BJP loses its majority, there could be some erosion in growth and fiscal consolidation prospects.
Nomura India also finds the timing of S&P Global Ratings' upgrade of India's outlook to 'Positive' from 'Neutral' puzzling, given the ongoing Lok Sabha elections. The outcome of these elections is expected to have a significant impact on India’s macroeconomic prospects, especially if there is a change in government.
Nomura noted that if the NDA, led by the BJP, remains in power with a simple majority, S&P’s positive outlook for India is likely to hold true, potentially leading to a future rating upgrade. However, Nomura described other potential political outcomes as making the outlook less certain, criticizing S&P's apparent dismissal of political risks.
The survey among institutional investors highlighted concerns that a BJP loss would lead to a decline in growth and hinder fiscal consolidation. If the opposition INDI alliance wins, most survey participants predicted medium-term growth to fall below 6.5%, a serious risk of fiscal slippage, and the possibility of continued policy rate hikes by the RBI.
Nomura supports these concerns, noting that the Indian National Congress (INC) manifesto was significantly more populist and reflationary compared to the BJP’s.
Nomura's quick estimates of some of the INC's poll promises indicated a high risk of major setbacks in fiscal consolidation. While S&P’s rating action appears to be an apolitical assessment, Nomura argues that the stark differences in the economic agendas of the main national parties make the election outcome highly relevant to India’s sovereign rating outlook.
S&P, however, stated that regardless of the election outcome, it expects broad continuity in economic reforms and fiscal policies.