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Moody's Ratings in its latest report has said that the BJP-led National Democratic Alliance's (NDA) slim majority in Lok Sabha may delay more far-reaching economic and fiscal reforms that could impede progress on fiscal consolidation. It also expects policy continuity, especially with regards to budgetary emphasis on infrastructure spending and boosting domestic manufacturing, to support robust economic growth. 

According to the report, India's fiscal outcomes will remain weaker than Baa-rated peers, even as the final budget for the fiscal year ending March 2025 (fiscal 2024-25) to be released in the next few weeks provides some indications of India's fiscal policy over the course of the term of the incoming government through 2029. In fiscal 2023-24, India's real GDP accelerated to 8.2 per cent from 7.0 per cent in the previous year, driven by gains in gross fixed capital formation as the government's infrastructure programme gained further traction even as private consumption remained subdued. It said ‘our assessment of India's economic strength incorporates real GDP growth of around 7 per cent over the three-year period between fiscal 2023-24 through 2025-26, while factoring potential upside over the medium-term resulting from improvements in productivity and potential growth on the back of traction on infrastructure development and digitalization’.

The rating agency said although it projects India to grow faster than all other economies in the G20 through fiscal 2025-26, near-term economic momentum masks structural weaknesses that pose risks to long-term potential growth. It noted that high levels of youth unemployment across all sectors and weakness in productivity growth in the sovereign's large agriculture sector continue to constrain its growth potential. While it expects the incoming government to carry over its focus on fiscal consolidation, material improvements in its debt ratios and interest servicing have yet to materialize.