New Delhi: Fitch Ratings on Friday said the revival of the government’s reform agenda in response to the coronavirus pandemic shock has the potential to raise India’s medium-term growth rate.
It said raising medium-term growth rates under these circumstances will require reforms to support investment and boost productivity and it will take time to assess whether the reforms are implemented effectively.
“Nevertheless, there are also downside pressures to growth and it will take time to assess whether the reforms are implemented effectively,” the agency said in a statement.
According to Fitch, the pandemic will slow medium-term growth, as damaged corporate balance sheets are expected to dampen investment for years. “Renewed asset-quality challenges in banks and generally fragile liquidity for non-bank financial companies could also constrain growth prospects and jeopardise the stability of the medium-term government debt/GDP trajectory,” it said.
Raising medium-term growth rates under these circumstances will require reforms to support investment and boost productivity, Fitch said, adding it expects the government to remain generally reform-minded over the next few years.
For the current fiscal, Fitch Ratings has projected a 10.5 per cent contraction in Indian economy. Several reforms passed by Parliament since the pandemic set in, could lift medium-term growth prospects, including the agricultural reforms to give farmers more flexibility over where to sell their produce, it said.
Stripping out middle men, as the reform allows, could improve farmer incomes while reducing consumer prices. Nevertheless, implementation risks are significant. For example, segments of the farm lobby have protested the reform, apparently over fears that it could result in the abolition of minimum support prices, although the government says this will not happen, Fitch said.
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