 "Rein in party members to retain credibility, Moody's tells Modi")
“In recent times, the government also hasn’t helped itself, with controversial comments from various BJP (Bharatiya Janata Party) members. While Modi has largely distanced himself from the nationalist jibes, the belligerent provocation of various Indian minorities has raised ethnic tensions,” Moody’s Analytics said in a recent note in its publication Dismal Scientist. The note is titled India Outlook: Searching for Potential.
It projected India’s economic growth for the September quarter at 7.3 per cent, while that for the full calendar year at 7.6 per cent. The economy grew by seven per cent in the June quarter, less than 7.5 per cent in the March quarter.
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“Key economic reforms could deliver greater potential gross domestic product, as they would improve India’s productive capacity. These include the land acquisition Bill, a national goods and service tax, and revamped labour laws. They are unlikely to pass through Parliament in 2015, but there is an even chance of success in 2016,” said Moody’s Analytics.
The note, authored by Moody’s Analytics associate economist Faraz Syed, said that along with a possible increase in violence, the government would face stiffer opposition in the Rajya Sabha as the debate turns away from economic policy.
“Modi must keep his members in check or risk losing domestic and global credibility,” the note cautioned.
Since the BJP does not have a majority in the Rajya Sabha to pass crucial reforms, the Bihar elections could prove pivotal to Modi’s leadership, it added. “The BJP is not the incumbent, so a win here would help secure an Upper House majority. Results will be out late next week. Given the lack of pre-polling, it’s too early to call,” the note said.
Moody’s Analytics is different from Moody’s Investors Service, which is a rating agency, though both are subsidiaries of Moody’s Corporation.
The research arm does not expect Bills related to the goods and services tax, land acquisition and labour reforms to pass in Parliament in 2015. However, these Bills have an even chance of success in 2016, it added. According to Moody’s Analytics, further rate cuts in 2015 are unlikely, but there is room for more next year.
Low interest rates will buttress the economy in the short-term, but reforms are needed to reach long-term potential growth.
Full capital account liberalisation is likely occur in next two to four years. Financial market sentiment has faded and the stock market and foreign inflows are down.
External factors are hurting India’s exporters and India is well placed for US interest rate normalisation, Moody’s Analytics noted.