‘Financial sector woes, weak reforms could hit India’s growth’

Fitch Ratings on Wednesday said India's medium-term growth potential is at around 6.5% but weak implementation of reforms, combined with continued financial sector problems, could lower its potential.

It said the revival of the reform agenda is among the Indian government's policy responses to the COVID-19 pandemic shock.

"If implemented effectively, we believe these reforms may help to support India's medium-term growth and partially offset downside pressures to investment from renewed asset-quality challenges in the financial sector and damaged corporate balance sheets," Fitch said.

It said the planned farm sector reforms aim to enhance efficiency, by giving farmers more flexibility over where to sell their produce by stripping out middle men and has the potential to improve farmers' income and reduce consumer prices.

"But, implementation risks are significant and the Supreme Court in mid-January suspended the relevant laws to facilitate a review and airing of farmer grievances," Fitch Ratings said.

It added that segments of the farm lobby have protested for months, apparently over fears that the reform could result in abolition of minimum support prices, although the government has said this will not happen.

Further, the labour market reforms aim at improving worker access to social security, strengthen occupational safety requirements, speed up the resolution of labour disputes and ease migrant workers' ability to move between states. The steps could support formalisation of India's labour market and improve its flexibility, it said.