Reform momentum likely to pick up after Lok Sabha elections next year: S&P

Reform momentum is likely to pick up only after the Lok Sabha elections next year and a little bit of boost to the expenditure in an election year would not adversely impact India's fiscal deficit target, S&P Global Ratings Director Andrew Wood said on Wednesday.

"Our expectation is major reforms in the country are probably unlikely right up to the election cycle and until 2024 Parliamentary elections are over. After that perhaps, reform momentum could pick up, particularly if there is a very strong mandate for the next government," Wood said.

S&P anticipates that the central government will meet its modestly lower fiscal deficit target and also state governments will be consolidating their finances gradually overtime.

"Even if we see a little bit of boost to the expenditure in an election year, in the run up to the elections, revenue growth also remains healthy in India and that has been supporting the gradual pace of fiscal consolidation," Wood said.

He was replying to a question on whether the higher expenditure in an election year would impact the fiscal deficit.

The fiscal deficit, which is the difference between government expenditure and revenue, narrowed to 6.4 per cent of GDP in the 2022-23 fiscal, from 6.7 per cent of GDP in the 2021-22 fiscal.

In the current fiscal, the deficit is budgeted at 5.9 per cent of GDP.

As per the fiscal consolidation roadmap, the government intends to bring down the fiscal deficit below 4.5 per cent of GDP by 2025-26.

In India, assembly elections are due in five states -- Rajasthan, Chhattisgarh, Madhya Pradesh, Telangana and Mizoram -- and Lok Sabha elections are scheduled next year.

Wood said S&P has factored in that India's general government deficit would average 7 to 9 per cent of GDP with a significant component of them being state-level deficit.

S&P Global Ratings had in May affirmed India's sovereign rating at BBB-, with a stable outlook saying the country's strengths lie in its fast-growing economy and strong external balance sheet. 'BBB-' is the lowest investment grade rating.

It said the Indian economy is set for real GDP growth of about 6 per cent in 2023, which compares favourably with emerging market peers amid a broad global slowdown. Investment and consumer momentum will underpin solid growth prospects over the next 3-4 years, S&P had said.