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New govt to face tough job among constraints: Moody's

May 18, 2009 14:36 IST

The return of the United Progressive Allaince to power may have raised hopes of reforms, but the new government could face a tough job pushing them because of political and global constraints, global rating agency Moody's said on Monday.

Constraints are political and global: political factors may come in the way of scrapping fuel subsidies and reforming outdated labour laws, while the global recession still continues, according to the rating agency.

"The government is likely to have a tough job pushing through some much-needed reforms," Moody's said.

It said that returning to the path of fiscal consolidation will be challenging for the government if the global recession becomes protracted.

"The financial crisis will mean any steps to liberalise capital flows and foreign investment will be cautious," it said.

The stock market, it said, is likely to rally after the election news, which surely did with the Bombay Stock Exchange and National Stock Exchange today touching their upper circuits, following which trading was halted for the day.

The markets had previously worried that gains by Leftist and smaller regional parties would weigh on the reform agenda and lead to a further blow-out in the already large fiscal deficit, Moody's said.

Meanwhile, the UPA government's rural jobs programmes and strong private sector investment have highlighted the positive effects of economic reform and liberalisation, it said adding that voters' shunning of smaller parties imply a desire for greater action on the reform front.

In the previous elections, the BJP-led and Congress-led alliances had been unable to push through reforms, held down by allies with their own agendas, it said.

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