09/11/2015 2:32 PM IST | Updated 15/07/2016 8:25 AM IST

Fitch Says Bihar Election Results Has Wobbled But Not Upset India's Economic Outlook

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The Bharatiya Janata Party may have got a drubbing in Bihar and the Sensex appears to have taken it badly, however international ratings agencies say this isn't going to alter their medium-term outlook on India. Thomas Rookmaaker, Director in Fitch Ratings’ Asia-Pacific Sovereigns team, said in a statement, “The BJP’s defeat in the Bihar state assembly election does not change our view on the medium-term economic outlook for India. The loss may complicate politics for the central government, but we don’t expect major implications on the economic front."

Both the BJP and the Grand Alliance, led by Nitish Kumar and Lalu Prasad, had offered a vision of 'development' in Bihar during the campaign trail. On Monday, the benchmark Bombay Stock Exchange (BSE) Sensex plunged below the 26,000-mark by falling over 608 points and the National Stock Exchange (NSE) Nifty dipped below 7,800-level in opening trade today on major sell-off by participants following the BJP-led NDA's defeat in Bihar assembly polls. This was accentuated by lower-than-expected quarterly earnings by some more bluechip companies, which dampened trading sentiments. By afternoon, trade had consolidated and improved nearly 300 points.

The rupee also fell to Rs 66.50 against the dollar on Monday morning, its lowest level in six weeks and over 70 paise below its previous close. The rupee was also under pressure as investors were expecting a correction in equity markets following the outcome of the Bihar election.

"The election results are not likely to impact decisions by foreign investors in other states and a big win for the BJP in Bihar would not have led to sufficient support in the Rajya Sabha anytime soon anyway. With continued opposition, the government will likely continue to try and pass legislation via ad hoc political deals, and if that does not work it may continue to resort to implementation of reforms at the state level," Rookmaaker added. Fitch, like other rating agencies, had given lowest investment grade to India.

Finance Minister Arun Jaitley also sought to downplay the impact of the Bihar elections on India's economy. "I don't see it as a setback to the economy... structural reforms will continue. They should continue at a rapid pace," he said

Last week, ratings agency Moody's Investors Service revised its outlook on India's banking system to "stable" from "negative" on Monday. This comes after a separate report by another of its divisions warned PM Modi that he ought to keep his party members “in check or risk losing domestic and global credibility.”

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