International rating agency Standard & Poor's, which recently upgraded its outlook on the sovereign ratings, said today that the economic performance of the country could "disappoint optimists" through 2015, but will better over a longer-term as the government initiates bold reforms. "We believe that the country's economic performance will disappoint optimists through 2015 but will likely be better than the fears of pessimists over the long-term," Standard & Poor's credit analyst Joydeep Mukherji said in a report on Thursday.

In the commentary, which comes a day after exit polls predicted gains for the BJP in the Haryana and Maharashtra polls, Mukherji said Prime Minister Modi will not take any dramatic reform measures immediately but will wait to add as many states in the kitty first before ushering in reforms. "Modi will seek to win as many state elections as possible, especially in the next two years, to gain seats in the Upper House and ease the passage of legislations," he said. The report indicated that price rise will continue being a problem and that inflation, which is restricting the Reserve Bank from loosening its elevated policy rates, will be at around 8% for 2014 and cool down to 7% in 2015.

On the fiscal deficit front, which was one of the top concerns which led S&P to lower its outlook on the country's rating to near junk status at BBB- and threaten a downgrade to junk status in 2012, the agency projected the fiscal deficit to exceed 7% of GDP in FY15 and remain above 6 % in FY16. The agency had affirmed its 'BBB-/A-3' long- and short-term sovereign credit ratings on September 26 and revised the outlook to stable from negative. "The outlook reflects our view that the newly elected government will be able to implement economic reforms that spur growth, which in turn improves fiscal performance," the note said.

On what to expect from economic policy making, Mukherji said importance of federalism, which will deepen further after the disbanding of the plan commission, and aspirations of the growing middle class, will be the focus areas. "The combination of growing federalism and a rising middle class sets the larger political context for the economic policies the government is likely to pursue in the next five years," he said.Mukherji said the agency expects steps to improve the administrative efficiencies in the fiscal consolidation process.

With the disbanding of the plan panel, the state governments will get greater degree of discretion in the use of transfers from the Centre and the states will also compete with each other for attracting investment and promoting growth, it said. The report said the tepid GDP growth of the past two years (sub-5%) has made the "bulging young lower middle income" group more favourable towards economic reforms, which are seen as ticket to economic expansion and prosperity.