The pace of reforms are likely to slow down as the new government struggles to address social imbalances. This was stated by the international rating agency, Fitch Ratings, following the outcome of India's general election, wherein Congress has come to power.
The agency added that the new government would not arrest structural economic reforms. Pointing to NDA's defeat, Fitch said this is a measure of the extent to which the majority of the population feel untouched by reforms.
"To date, liberalisation has mainly benefited the middle classes, but they comprise only 10-15 per cent of the population," said Fitch sovereign ratings senior director Paul Rawkins.
India's long-term rating is 'BB+', its short-term rating is 'B' and its long-term local currency rating is 'BB+', with the overall outlook being stable.
Fitch stated that while India's sovereign ratings have been constrained by shortcomings in the fiscal arena, with government deficits exceeding 80 per cent of gross domestic product.
Fitch pressed that raising revenues will be essential if electoral promises by Congress and its allies of free electricity and rural debt forgiveness are not to undermine state government finances.
"While it remains to be seen how a Congress-led coalition would tackle this challenge, it is notable that Congress has been a strong supporter of the Kelkar committee's recommendations on tax reform. This is in contrast to the National Democratic Alliance, which implemented relatively few of this body's recommendations," stated Fitch in a press statement.
On the other hand, Fitch said that NDA's track record of structural economic reforms has been an impressive one and Congress will have to work hard to match it.