Lok Sabha Election Results: Nomura on India's Economy

Singapore, Jun 5 (PTI) India's economic fundamentals remain robust, investment bank Nomura said on Wednesday after the results of the country's general elections paved the way for Prime Minister Narendra Modi's third consecutive term in office.

Modi is poised to form the government for a third consecutive term with the BJP-led National Democratic Alliance (NDA) getting a majority in the Lok Sabha, notwithstanding crushing losses in three Hindi heartland states after a bitterly fought election that was projected as a referendum on his popularity.

The Election Commission of India has declared results for all 543 Lok Sabha constituencies, with the BJP winning 240 seats and the Congress 99.

"Our assessment is that India's economic fundamentals remain robust. Reforms in India have generally survived the test of politics and we expect the government to continue the pace of governance and administrative reforms, leaving states to work around the more intractable reforms around land and labour," Nomura said.

While near-term uncertainty is high and the political backdrop is slightly different, the broader direction of reforms, macros and the economy remain unchanged, it added.
The immediate focus is on government formation, as well as political parleys between parties, Nomura said, citing news reports that the swearing-in ceremony could happen on June 9.

"We believe the Cabinet could have some new faces and our focus will be on the final budget, most likely in early July, to assess the policy direction," the investment bank said.

The first 125-day agenda of the new government will most likely focus on digitalisation, infrastructure, industrialisation and governance-related reforms, it added.

The election outcome could result in some reorientation of spending towards revex from capex.

However, the bank's analysts do not foresee a dismissal of macro prudence.

"We do not expect any slip of the interim budget target of 5.1 per cent of GDP but, if the government deems reflationary policies as a political necessity, then that could mean slower consolidation," it said.

Supply-side reforms are likely to continue while factor market reforms will remain difficult, Nomura said and added that it is not expecting a material impact on monetary policy.