After Bihar debacle, Arun Jaitley says government will push ahead with reform

“The loss may complicate politics for the Central government, but we don’t expect major implications on the economic front,” said Thomas Rookmaaker, Director in Fitch Ratings’ Asia-Pacific Sovereigns team. While the Bihar debacle for the BJP might not change anybody’s growth outlook forecasts, it does open up questions about whether the government will accelerate reforms especially when the global growth outlook is also dim.

“Reforms will continue to be calibrated at a pace that takes everyone along, especially after the Bihar poll result, although this may disappoint some segments of the markets,” said a note from Bank of America Merrill Lynch. The complication for the NDA will arise from opposition parties placing hurdles in legislative agenda. This has already been seen in cases such as the land acquisition bill and the goods and services tax regime.

“The government may have to rely on…cooperative federalism (something which the Prime Minister has championed anyway) and political management to reinvigorate legislation at the central level,” said a note from Kotak Institutional Equities. That will get all the more tougher as an opposition, encouraged by this set back for the Central ruling party, increases its attack on the BJP and disrupts Parliament. Still, while a slower pace of rollout may be expected for the big ticket reforms, as Fitch’s Rookmaaker points out, “the government has gradually rolled out a large number of initiatives and there is no indication it would now change course.” The recent bailout package for discoms is a case in point.

For markets, which have discounted the loss, the next set of triggers would come from a host of factors such as corporate earnings, lending rate cuts and externals events such as the US Federal Reserve’s decision to hike interest rates.