LONDON, May 30, 2019 /PRNewswire/ -- On 23 May, Narendra Modi secured a second mandate as Prime Minister. The result signals broad continuity for the macroeconomic outlook.
In the near term, we expect continued support for farmers to boost rural consumption and further out we see more fiscal easing. That said, long-standing challenges remain and will continue to hold back India from reaching its full potential.
Election results: landslide victory for Modi and his allies
The National Democratic Alliance (NDA) gained control of the Lok Sabha (lower House of the Indian Parliament), winning over 350 of the 542 seats. The Bharatiya Janata Party (BJP), the biggest coalition partner of the NDA, secured a single party majority with over 300 seats, improving on its 2014 record.
India outlook broadly unchanged
India is currently the fastest growing major economy in the world, expanding at around 7% each year, with downside risks for the current year. We expect growth to continue around these levels in the coming two years.
We expect the February interim budget to be extended to the full budget year. Income support to farmers will boost rural consumption, with 120 million small farmers eligible to receive INR 6,000 per year (initial instalments have already been dispatched).
A fiscal deficit target of 3.4% for FY2020 is unlikely to be met given tax receipts for FY2019 has been lower than expected. Despite this limited fiscal space, we see upside risks to our forecasts coming from continued public spending in infrastructure such as roads.
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