New Delhi: Moody's Investors Service emphasized on Monday that the strength of the upcoming government's mandate, as determined by the parliamentary elections later this year, will significantly impact India's medium-term fiscal consolidation and governance trajectory.
According to Moody's, the anticipated moderation in the US economy and persistent sluggish growth in the euro area throughout 2024 will dampen the demand for goods produced in the Asia Pacific region, affecting global commodity prices. However, it noted that prominent emerging markets like India are well-positioned to counter these challenges.
In its 2024 outlook for Asia Pacific (APAC) sovereigns, Moody's highlighted the potential policy uncertainties arising from forthcoming elections, particularly those with a higher likelihood of leadership transitions, such as Indonesia. These uncertainties may manifest as governments grapple with managing key geopolitical relationships, especially concerning China and the US, ongoing economic and fiscal challenges, and their long-term commitments to addressing climate change.
Moody's underscored the prevalence of social risks during political transitions, cautioning that these could hinder reform progress and diminish access to crucial external funding in several frontier economies, including Bangladesh, Pakistan, and Sri Lanka.
"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 stated.
India's parliamentary elections are scheduled for April-May this year.
In a related development, last month, Fitch, another rating agency, expressed confidence in the Modi government's likelihood of retaining power in India and expressed hope for policy continuity.
Moody's APAC report additionally highlighted the significance of the US and Europe, alongside China, as export destinations for many APAC economies. This includes frontier markets specializing in garment manufacturing, such as Bangladesh and Cambodia, as well as producers of higher value-added products, including machinery and transport equipment in the cases of Japan, Korea, and Taiwan, China.
Despite lackluster global macroeconomic conditions affecting sectors like electronics, Moody's anticipates stable domestic consumption in large emerging markets such as India, Indonesia, the Philippines, and Vietnam. This stability will be supported by robust labor markets and limited targeted fiscal support.
Moreover, Moody's anticipates that the cultivation of new sources of growth, such as the adaptation of large services sectors to disruptive technologies, will aid certain economies in navigating the challenging global environment.
—Input from Agencies