New Delhi . The BJP-led NDA has started moving towards government formation. Meanwhile, rating agency Fitch Ratings said on Thursday that coalition politics and weak mandate could make it challenging to pass laws on ambitious reforms. The rating agency has expressed hope that the growth rate will remain at seven percent in the current financial year.

Growth rate will be around 6.2 percent

The agency says that despite the government having a slim majority, India's medium-term growth will remain around our estimate of 6.2 per cent by FY 2027-28. Continued public capital expenditure on infrastructure, digitalisation initiatives and improvement in the balance sheet of banks and companies compared to before the pandemic will promote a strong outlook for private investment. We believe that major reforms in land and labour laws will remain on the agenda of the new government. But these have long been controversial and the NDA's weak mandate will further complicate the passage of these laws. This could reduce the potential gains to India's medium-term growth prospects.

Fitch Ratings said the outcome should promote broad policy continuity as the government continues to prioritise infrastructure capital expenditure, improving the business environment and gradual fiscal consolidation. We do not expect the election loss to lead to a major shift in policy accommodation, but the full budget to be presented in July should provide greater clarity about economic reform priorities and fiscal plans over the coming five years.

PLI scheme expected to continue

The rating agency expects the production-linked incentive (PLI) scheme to remain in place, which will help attract foreign investment in targeted sectors such as electronics. However, private investment has not yet picked up meaningfully, representing a risk to the outlook. Fitch Ratings expects the fiscal deficit target of 5.1 per cent for FY24-25 to be achieved and the target of reducing the deficit to 4.5 per cent of GDP in the next fiscal year is also within reach.