The Indian government led by the Bharatiya Janata Party (BJP) has initiated various reforms in its first year in office, and it will continue to enact incremental rather than big bang reforms over the coming years. That said, the lack of majority in the Rajya Sabha, India s ----seat upper house, will remain a hurdle to the implementation of large-scale reforms. ...However, weakening agricultural growth and slowing reform momentum, notably in the infrastructure sector, will weigh on overall economic growth, and we maintain our FY----/-- (April-March) real GDP growth forecast to -.- . The Reserve Bank of India (RBI) kept its repurchase (repo) rate unchanged at -.-- at its December monetary policy meeting, and we expect the central bank to keep its benchmark policy rate steady for the remainder of FY----/-- (April-March) as its shifts its focus towards improving the transmission of past rate cuts. The RBI left the door open for further easing, and given that medium-term infla- tion is likely to remain subdued in FY----/-- (coming in below the RBI s target of -.- ), we forecast another -- basis points worth of interest rate cuts in FY----/-- to -.-- . ...The RBI will continue to allow the currency to weaken in order to keep the currency competi- tive against its regional peers. However, major rupee weakness is unlikely as continued economic growth and positive real interest rates will lend support to the currency.
...Lastly, we expect the slowing reform momentum in India to prevent the economy from expanding at a much more rapid pace. We believe that the Bharatiya Janata Party (BJP)-led government will focus on reforming the economy in a gradual manner as it will continue to find difficultly in passing big bang structural reforms due to its lack of a majority in the upper house of the parliament (Rajya Sabha). ...According to various news sources, the ---member joint par- liamentary committee, which is tasked to discuss the proposed changes to the bill, will not be able to submit its report in the first week of the winter parliamentary session (which lasted from November -- to December --). Therefore, we expect infrastructure project execution to remain slow as it continues to be negatively affected by land disputes, law enforcement problems, rehabilitation and resettlement problems, delays in environmental clearances, right of use issues, delays in the sup- ply of materials, and contractual issues. Indeed, the construction sector grew by a sluggish rate of -.- y-o-y in Q-FY----/--, slowing significantly from an expansion of -.- y-o-y in the previous quarter. As such, we expect the infrastructure sector to continue receiving support from the government, as the private sector remains highly indebted.
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