A study by industry body Assocham has said that uncertainty over the outcome of the upcoming Lok Sabha elections is likely to cast a shadow on the economy, adding to investor concerns.
The study said there was a rising concern among investors, industry leaders and economists about the possibility of an unstable government after the polls that may follow more of the 'populist and Left of Centre policies'.
Such prospects increased after the results of the recent Assembly elections and strong emergence of the Aam Aadmi Party, it added.
Assocham said even as the much-awaited green shoots in the economy look illusive in several segments of industry and services sector, the new government at the Centre will be faced with a difficult fiscal situation.
"On the one hand, there would be increasing expenditure due to populist and mega schemes in the social sector, on the other, the taxation kitty would not be robust enough in the face of slowdown," the study said.
Moreover, it found that the "prospects of a highly fractured mandate look real and that would not be a good development for the economy, ironically at a time when we are getting desperate for a turnaround."
The study identified main challenges which will have to be fixed immediately by the new government, which include maintaining a tight leash on government finances, besides chalking out and implementing a blueprint for restoring high growth which can generate large scale employment.
Apart from these challenges, Corporate India which is battling high debt in several sectors like real estate, telecom, wind energy, capital goods and infrastructure would have its own expectations from the new government, it said.
"The industry would need a big push from the new government in terms of reviving manufacturing and investment in the big ticket infrastructure projects requiring large scale financial debt," the study said.