Strength of next govt's mandate to influence fiscal consolidation: Moody's

Last month, rating agency Fitch said the Modi government is "most likely" to retain power in India and hoped that policy continuity would be maintained

Moody's Investors Service on Monday said the strength of the next government's mandate following parliamentary elections this year will influence the medium-term trajectory for fiscal consolidation and governance in India.

It said a moderation in economic conditions in the US and the persistence of subdued growth in the euro area in 2024 will further dampen demand for goods produced in Asia Pacific and curb global commodity prices, but large emerging markets like India will be able to mitigate the impact.

Moody's in its 2024 outlook for APAC sovereigns said that the forthcoming elections, particularly those with greater likelihood of leadership transitions, including Indonesia, pose a degree of policy uncertainty as governments seek to manage key geopolitical relationships, especially regarding China and the US, current economic and fiscal strains, and longer-term commitments toward addressing climate change.

The prevalence of social risks amid political transition could undermine appetite for or progress on reform, curtailing access to critical external funding in a number of frontier economies such as Bangladesh, Pakistan and Sri Lanka, it said.

"In India, the strength of the next government's mandate following parliamentary elections in 2024 will influence the medium-term trajectory for fiscal consolidation and governance more generally," Moody's said.

Parliamentary elections in India are due in April-May this year.

Last month, rating agency Fitch had said the Modi government is "most likely" to retain power in India and hoped that policy continuity would be maintained.

Prime Minister Narendra Modi-led BJP government had came to power in 2014 and came back with a thumping majority in 2019 general elections as well.

Moody's in its APAC report further said the US and Europe are as significant as China as export destinations for many APAC economies, including frontier markets such as Bangladesh and Cambodia that specialize in garment manufacturing, as well as manufacturers of higher value- added products such as machinery and transport equipment in the cases of Japan, Korea and Taiwan, China.

In addition, "we expect lackluster global macroeconomic conditions to limit growth for electronics sectors around the region, although semiconductor manufacturing will emerge from a deep downturn," it said.

"Stable domestic consumption, underpinned by robust labour markets and the provision of limited targeted fiscal support, will mitigate such factors to varying degrees, particularly in large emerging markets such as India, Indonesia, the Philippines and Vietnam," Moody's said.

The cultivation of new sources of growth will also help some economies to navigate the difficult global environment, for example, the adaptation of large services sectors toward the development of disruptive technologies, it added.