Cautioning against "empty promises" of the Narendra Modi government, Moody's Analytics, an analysis and research firm of the Moody's group, warned on Thursday that failure to push through critical pieces of legislation such as the land acquisition Bill, the goods and services tax (GST), and flexible labour laws are likely to derail India's medium to long-term growth prospects.
In a report titled India Outlook: Waiting for Reforms to Fuel Growth, Moody's Analytics says it does expect these crucial pieces of legislation to be cleared only at the end of this year or even 2016 as the government has been unable to push its legislative agenda through the Rajya Sabha, where it does not have a majority. It warns that in the absence of these reforms, annual GDP growth is not likely to cross 7.5 per cent.
Pegging India's true annual growth potential at near 10 per cent, Moody's Analytics said the "jury is still out on Prime Minister (Narendra) Modi, but the government's failure to deliver on promised reforms is a major impediment to a broader economic growth momentum in the country".
While the Cabinet on Wednesday cleared changes in the Constitution Amendment Bill on GST, already cleared by the Lok Sabha, the ruling coalition does not have the required two-thirds majority in the Rajya Sabha to clear it. Even if one takes only the numbers of those parties which had put dissent notes on the amendments suggested by the Rajya Sabha's select panel - the Congress, the AIADMK and the Left parties - the government along with those supporting the Bill would fall short of seven members as these dissenting parties have 89 members out of 245 in the Upper House.
The report underlined concerns over the revival of the private investment cycle. It noted while there was a cyclical upswing late last year, it is still not broad-based. "Investment rates have fallen amid stalled infrastructure projects and a rise in bad loans." Of particular concern is the manufacturing sector, which as the purchasing managers index (PMI) shows is struggling. The report argues that a rebound is unlikely to materialise unless significant reforms are passed.
PMI for the manufacturing sector fell to 51.3 points in June from 52.6 in the previous month as new business orders were not as forthcoming.