The global rating agency Fitch Ratings in a note on Wednesday said that the BJP losing its outright majority and relying on allies to form a government could pose challenges for the more ambitious elements of the reform agenda like land and labour.

“It appears the BJP-led NDA is likely to form the next government, returning Prime Minister Modi for a third term, but with a weakened majority that could pose challenges for the more ambitious elements of the government’s reform agenda,” Fitch said.

As the BJP fell short of an outright majority and will need to rely more heavily on its coalition partners, passing contentious reforms could prove more difficult, particularly around land and labour, which have recently been flagged as priorities by the BJP to boost India’s manufacturing competitiveness, it said.

The rating agency expected policy continuity to persist despite a slimmer majority. It expected the government to retain its focus on capex push, ease of doing business measures, and gradual fiscal consolidation.

“We expect India’s strong medium-term growth outlook to remain intact, underpinned by the government’s capex drive and improved corporate and bank balance sheets. But upsides to medium-term growth prospects are likely to be more modest if reforms prove more challenging to advance,” it added.

Notably, reports by global agencies like Bernstein and Citi Research also revealed that the policy continuity will remain, there is an expected bias of markets as well, there would be a shifted focus on rural agriculture and that infrastructure, manufacturing and technology would continue to be the key growth drivers of the economy for the government.

Citi Research said there would be a bias of markets as the new government will have to focus on more populist policies in the budget.

Given higher RBI dividend and lower fiscal deficit for FY24, there is 0.35% of GDP (INR 1.2trn) additional fiscal space available to the government for FY25 even if they want to exactly meet the interim budget target of 5.1 per cent of GDP, it added.

First time since 2014, the Narendra Modi-led BJP lost its majority winning 240 seats in the 543-seat Lok Sabha.