A somewhat surprising election result in India has not altered the country’s solid growth fundamentals, and the Indian economic opportunity remains very much in place.
Earlier this month, India's Bharatiya Janata Par, led by PM Narendra Modi, secured a third term in government with a reduced majority.
Signals of policy continuity, including indications that the government will keep a number of core ministries and ministers from its previous term, have reassured markets.
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There are questions around fiscal policy and what needs to be done, but India is in very good shape. ANZ Research’s view is there is no fiscal risk in the current year ending March 2025.
India’s government will have enough resources to meet any spending requirements without sacrificing fiscal deficit targets, especially on the back of the bumper dividend transfers from the Reserve Bank of India (RBI).
There is a risk however the government's fiscal resolve will be tested in fiscal 2026 and beyond. Striking a balance between quality of spending and the need to further lower the fiscal deficit ratio will be critical.
On monetary policy, ANZ Research thinks the policy calculus for the RBI hasn't changed. The central bank will remain focussed on lowering inflation and maintaining stability in the rupee.
Finally, ANZ Research expects the new government will continue to focus on policy initiatives in areas such as manufacturing and exports. There is a shared desire for strong gross domestic product growth to trickle down to the grassroots level of the economy, and that will require those policy initiatives to continue.
However, reform momentum may slow in areas such as land, labour and agricultural markets, which could have a slightly negative impact on things like foreign domestic investment.
You can watch the video above to find out more.
Dhiraj Nim is an Economist & FX Strategist at ANZ Research
