Reform policies crucial to India's economic health: S&P

The outcome of India’s general elections can provide insights into the political stability, ability, and willingness of the new government to implement reforms for boosting economic growth, said Standard & Poor’s Ratings Services in two reports published on Tuesday.

According to the reports titled ‘India’s Election Is Pivotal For Its Sovereign Creditworthiness’ and ‘The New Government’s Reform Policies Will Be Critical To The Credit Profile Of Indian Corporates And Banks’, the direction and pace of policy reforms, more than which political party takes control, can affect the ratings on the sovereign.

“We believe that the current political landscape in India suggests that no single party could win an outright majority,” said Standard & Poor in a statement quoting sovereign credit analyst Kim Eng Tan. “An important factor is how fragmented the government will be. The more parties involved in the next coalition government, the more likely (that the) policies will be incoherent and less supportive of credit attributes.”

The elections and subsequent policy actions could decide if India’s sovereign rating remains investment grade. “We believe a decisive mandate can create an environment for speedy resolution of policy bottlenecks and reforms, and improve private sector investments,” said S&P corporate credit analyst Abhishek Dangra.

“This can lay the foundation for India’s return to a stronger and healthier growth phase in the medium term. Conversely, a fragile government could further delay critical reforms as decision-making gets hampered, curbing revival in the investment cycle and derailing growth.”

India’s 16th general elections, where more than 800 million people are eligible to vote, are underway. To claim the right to form a new government, a single political party or a coalition of political parties needs to win 272 out of 543 seats.

“In our view, the infrastructure, power, metals and mining, and petroleum sectors are more exposed to risks from development in government policies affecting corporate performance and banks’ asset quality and capitalization needs,” Dangra said.