The results of the latest state election in India demonstrate broad-based popular support for the government’s policy agenda and will facilitate the implementation of further reforms, a credit positive for the sovereign, Moddy’s Investors Service said in a note.
Moody’s said wins by the the Bharatiya Janata Party (BJP) led by Prime Minister Narendra Modi will help the party increase its share of seats in the upper house of India’s parliament.
“The ruling party will not feel the benefit of its electoral gains immediately, because the changes in the upper house will only occur next year, when some members retire,” said William Foster, a Moody’s Vice President and Senior Credit Officer.
“Nevertheless, electoral support at the state level should translate into broader support for government policy in the upper house, facilitating the passage and implementation of additional reforms” he added.
Moody’s report said that altogether, the BJP has won a net 294 seats in the five state assembly elections held over the past month. The BJP’s solid gains were despite the negative economic hit from demonetization in late 2016.
Looking ahead, the report said that next year 69 seats in the upper house, including 10 from Uttar Pradesh and one from Uttarkhand, will come up for reelection. If the BJP-led coalition increases its seat tally to or close to an outright majority, passage of policies will become easier, helping to accelerate reform.
In addition, collaboration between the central government and the new BJP-led states could improve, partially circumventing impediments to reform at the federal level on politically sensitive issues like land and labor reform, it said.
“This situation would support state-led reform momentum. For example, BJP-led states like Gujarat and Rajasthan have already amended some land and labor laws.”