Slow Growth, El Nino Impact Key Hurdles for New Government: Foreign Banks

Continuing their strong interest in India's polls, a clutch of well-known global banks have listed out challenges for the new government like kickstarting the economic growth cycle, fiscal consolidation, and the much- feared impact of El Nino.

"The items on the to-do list for the incoming government are many, key among them are fiscal consolidation, improving the business climate, complementing anti-inflation efforts and sustaining the improvement in the current account deficit," DBS said in a research note.

Steps to improve governance, instill confidence in the government machinery and streamlining function across the different ministries are also important to feed the positive mood, the DBS report added.

Echoing similar sentiments, German Financial services major Deutsche Bank in a research report said, "This summer will see a new Parliament and Cabinet take up the job of running the government of India for the next five years. A sobering fiscal reality awaits the new Finance Minister as stagnant revenues and sticky expenditures would make the job of further consolidation difficult."

If the authorities choose to expedite capital spending to orchestrate a cyclical turn in the investment cycle and boost long-term growth, the short-term casualty will be the debt/Gross Domestic Product (GDP) ratio, Deutsche Bank India Chief Economist Taimur Baig said.

In its research report, Bank of America Merrill Lynch said, "If the elections throw up a surprise and we end up with a fragmented coalition, we believe the market would reverse its gains and we could see a sharp 15-20 per cent correction."

Soon after taking office, there are also some other challenges that need to be dealt with. Foremost among them will be the likelihood of a weak monsoon if El Nino appears.

If the probability of the El Nino event increases and the likely impact on rains becomes more apparent by June, the government would need to outline a support mechanism for the farm sector ahead of time, experts at DBS say.

Meanwhile, Swiss banking giant UBS in a research report, said, "Our discussions with investors suggest that these polls have aided expectations around increased probability of a Modi/BJP-led government."