Days after the BJP party failed to secure a majority in the Lok Sabha election 2024, Moody's Analytics said that the reduced political stability and the need to build consensus in a coalition government may slow down the decision making of the new government and might erode investors' confidence in the near term.
The ratings agency, in its report -- 'India Election Review: Voters Force the BJP into Coalition Government' -- noted that the Lok Sabha election results mean dynamics are about to change in Parliament, as coalition partners will gain influence and leverage in policy decisions, allowing for a more inclusive approach to governance.
"The BJP will need to use the tools of negotiation and compromise to maintain a cohesive government. This will likely slow decision-making and potentially dilute some of the party's key policy initiatives," it said in the noted.
While the BJP’s vote share has remained unchanged since 2019 at 37.37 per cent, it could not reach the magic number of 272 seats. The BJP had won 303 seats in 2019. This time, it bagged 240 seats.
The BJP-led NDA won 293 seats in the 543-member Lok Sabha, comfortably above the majority mark of 272.
The report said though PM Narendra Modi secured a third term in office, the BJP's greatly weakened position marks a significant shift in the political landscape.
"Reduced political stability and the need for consensus building that is inherent with coalition government might erode investor confidence in the near term," Moody's Analytics Associate Economist Aditi Raman said.
It said markets will want to see how the new-look government goes about addressing longstanding challenges such as inflation, high unemployment, and socio-economic disparities.
The effectiveness of policies implemented by the coalition government will determine India's growth trajectory for the next five years, it said.
The Union Budget will be an early indicator of policy priorities, including short-and long-term responses to some of those key economic challenges.
arlier in the day, PM-elect Modi, in his speech, stressed that while a majority is needed to form a government, consensus is essential to run the nation. Modi asserted that the NDA is not merely a coalition for governance but an organic alliance rooted in values from leaders like Vajpayee, Prakash Singh Badal, Bal Thackeray, and George Fernandes. He stressed that good governance and the welfare of the poor are the common themes uniting all NDA allies.