The decisive election victory for the Narendra Modi-led National Democratic Alliance has created a conducive environment for policy actions and should help in economic recovery, Reserve Bank of India Governor Raghuram Rajan said on Tuesday.
Lead indicators point to continuing sluggishness in domestic economic activity in the first quarter of 2014-15, Rajan said in the RBI's Second Bi-Monthly Monetary Policy Statement for this financial year.
The outlook for agriculture is clouded by forecasts of a delay in the onset of the south-west monsoon, he said.
However, the clear election verdict should help the economy to pick pace, the Governor said in the first policy review since Modi took oath as Prime Minister on May 26.
"The decisive election result, together with improved sentiment should, however, create a conducive environment for comprehensive policy actions and a revival in aggregate demand as well as a gradual recovery of growth during the course of the year," Rajan said.
The Bharatiya Janata Party-led NDA won 336 of the 543 seats in the Lok Sabha in the April-May general elections, the first time in 30 years that a pre-poll alliance has won a clear majority in the lower house.
India's economic growth remained below the 5 per cent mark for the second year in a row at 4.7 per cent in 2013-14, reminiscent of the period from 1984-85 to 1987-88.
GDP expansion in the fourth quarter of 2013-14 remained subdued at 4.6 per cent as manufacturing and mining output declined, but industry is hopeful of a rebound with a stable government headed by Modi, who is considered pro-business.
The benchmark 30-share BSE Sensex crossed the 25,000 mark for the first time when votes cast in the Lok Sabha polls were counted on May 16, although the index has retreated since.
Overseas investors pumped in almost Rs 34,000 crore in the Indian market in May on hopes the new government at the Centre would push reforms and spur economic growth.